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Romashka-Z-Leto [24]
1 year ago
8

troy is interested in buying a particular stock whose current dividend per share is $1.10. troy estimates that the current divid

end per share will increase at a rate of 2.15% per year forever. if troy's estimates are correct, what is the best estimate of the stock price per share if the required rate of return is 16.00%.
Business
1 answer:
MatroZZZ [7]1 year ago
6 0

0.250180505 is the best estimate of the stock price per share if the required rate of return is 16.00%.

Stock Price =D1/(ke-g)

D1 =1.10*(1+2.15%) = 3.465

ke =16.00%

g =2.15%

Stock Price =(1.10*(1+2.15%))/(16.00%-2.15%) = 0.250180505 Per Share

  • The dividend growth rate is the annualized percentage rate of growth that the dividend of a given stock experiences over time. The dividends provided to investors on a monthly basis are something that many established companies aim to grow. For stock valuation models known as dividend discount models, knowledge of the dividend growth rate is a crucial input.
  • The dividend discount model must be used, and this requires knowing how to calculate the dividend growth rate. A specific category of security-pricing model is the dividend discount model. The dividend discount model makes the assumption that a given stock's price is determined by the expected future dividends, discounted by the difference between the company's internal growth and the estimated dividend growth rate.

Learn more about Dividend growth rate, here

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