Last Dividend, D0 equals $2.
The growth rate for the following three years is 10%, and thereafter, it will remain steady at 5%.
D1 = $2.00 * 1.10 = $2.20
D2 = $2.20 * 1.10 = $2.42
D3 = $2.42 * 1.10 = $2.662
D4 = $2.662 * 1.05 = $2.7951
10% is the required return.
P3 = D4 / (rs - g) (rs - g)
P3 = $2.7951 / (0.10 - 0.05) (0.10 - 0.05)
P3 = $2.7951 / 0.05 \sP3 = $55.9020
P0 = $2.20/1.10 + $2.42/1.10^2 + $2.662/1.10^3 + $55.902/1.10^3
P0 = $48.00
Consequently, the stock's current price is $48.0.
A stock usually referred to as equity, is a type of investment that denotes ownership in a portion of the issuing company.
Shares, also known as units of stock, entitle their owners to a share of the company's assets and income in proportion to the number of shares they possess.
Most individual investors' portfolios are built on stocks, which are primarily bought and sold on stock exchanges.
Government regulations designed to shield investors from dishonest practices must be followed during stock trades.
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