Royal Bank common shares pay dividends annually. They just paid a $1.50 dividend. Stock holders require a return of 12%. Royal

Question

4 years ago

13

is expected to continue paying dividends that will grow at 3.5% per annum in perpetuity. What is the fair price of a share of Royal Bank stock?

1 answer:

Oxana [17] · Answer 1 · 2021-11-17T08:59:09+03:00

Oxana [17]4 years ago

8 0

Answer: $18.26

Explanation:

The Dividend discount model can be used to calculate he fair price of the Royal bank stock.

The formula is;

= Next dividend/ ( Required rate of return - growth rate)

= ( 1.5 * ( 1 + 3.5%))/ ( 12% - 3.5%)

= $18.26

Royal Bank common shares pay dividends annually. They just paid a​ $1.50 dividend. Stock holders require a return of​ 12%. Royal