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yawa3891 [41]
1 year ago
10

starskeep, inc., is a fast-growing technology company. the firm projects a rapid growth of 40 percent for the next two years and

then a growth rate of 20 percent for the following two years. after that, the firm expects a constant-growth rate of 8 percent. the firm expects to pay its first dividend of $1.25 a year from now. if your required rate of return for such stocks is 20 percent, what is the current price of the stock?
Business
1 answer:
tino4ka555 [31]1 year ago
3 0

When the required rate of return for such stocks is 20 percent, the current price of the stock is 15.63.

<h3>What is stock?</h3>

Stock in finance refers to all of the shares that make up a corporation's or company's ownership. A single share of stock represents fractional ownership of the corporation based on the total number of shares. A stock is a broad term that refers to any company's ownership certificates.

The price will be calculated thus:

D1 = 1.25

D2 = 1.25 × (11+.40)

D3 = 1.25 × (1+.40) × (1+.20)

D4 = 1.25 × (1+.40) × (1+.20)^2

P4 = 1.25 × (1+.40) × (1+.20)^2 × (1+.08)/(.20 - .08)

Note that d is the dividend.

Current Stock Price = 1.25/(1+.20)^1 + 1.25*(1+.40)/(1+.20)^2 + 1.25*(1+.40)*(1+.20)/(1+.20)^3 + 1.25*(1+.40)*(1+.20)^2/(1+.20)^4 + 1.25*(1+.40)*(1+.20)^2*(1+.08)/(.20 - .08)*(1+.20)^4 = 15.625 or 15.63

Therefore, the current price is 15.63.

Learn more about stock on:

brainly.com/question/25818989

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