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30 July, 21:20

A stock just paid a dividend of d0 = $1.50. the required rate of return is rs = 10.26%, and the constant growth rate is g = 4.0%. what is the current stock price?

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  1. 30 July, 21:29
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    The current stock price is $25.

    Explanation:

    Since the dividend is $1.50

    The required Rate of return is 10.26%

    Constant growth rate is 4.0%

    Therefore,

    The current stock price is

    = dividened x (1+constant growth rate) / required Rate of return - constant growth rate.

    =$1.50 x (1 + 4%) / 10.26% - 4.0%

    =$1.50 x (1+0.04) / 0.1026 - 0.04

    = $1.50 x (1.04) / 0.0626

    =$1.56/0.0626

    =$24.92

    The current stock price is therefore $25. Approximated to the nearest dollar.
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