Question

The FI Corporation's dividends per share are expected to grow indefinitely by 7% per year. a. If this year’s year-end dividend is $10 and the market capitalization rate is 12% per year, what must the current stock price be according to the DDM?

Answer 1

Answer:

Price = $200

Explanation:

Price = $\frac{D1}{r-g}$

D0= Next year's dividend

r= rate of return

g = growth rate

Price = $\frac{10}{(0.12-0.07)}$

Price = 10 / 0.05

Price = 200

Therefore, the current value of the stock is $200