Question

A share of common stock just paid a dividend of $3.25. It is expected that the stock will grow at a rate of 18 percent. If investors require a rate of return of 24 percent, what should be the price of the stock? (Do not round intermediate calculations. Round final answer to two decimal places.)

Answer 1

Answer:

At the expected growth rate of 18% and rate of return 24% the stock price will be $63.92

Explanation:

$Stock price = Dividend paid (1 + long run growth rate) / (Required rate of return - long run growth rate)$

Stock price = $3.25 * (1+18%) / (24%- 18%)

Stock price = $3235 /0.06

Stock price = $63.92

Thus the stock price will be $63.92