Question

A stock is expected to pay a dividend of $.075 at the end of the year. The required rate of return is rs=10.5% and the expected constant growth rate is g=8.2%. What is the stock's current price?

Answer 1

Answer:

$3.26

Explanation:

The computation of the stock current price is shown below:

As we know that

The Current stock price is

= Expected dividend paid ÷ (required rate of return - growth rate)

where,

Expected dividend paid is $0.075

The Required rate of return is 10.5%

And, the growth rate is 8.2%

Now placing these values to the above formulas

So, stock current price is

= $0.075 ÷ (0.105 - 0.082)

= $3.26