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pav-90 [236]
4 years ago
15

Cullumber Corp. paid a dividend of $2.44 yesterday. The company’s dividend is expected to grow at a steady rate of 5 percent for

the foreseeable future. If investors in stocks of companies like Cullumber require a rate of return of 25 percent, what should be the market price of Cullumber stock? (Round dividend to 3 decimal places, e.g. 3.756 and round final answer to 2 decimal places, e.g. 15.25.)
Business
2 answers:
Y_Kistochka [10]4 years ago
8 0

Answer:

The market price is $12.81 per share.

Explanation:

The price of the stock today can be calculated using the constant growth model of DDM as the dividends are expected to grow at a constant rate. The formula to calculate the price of the stock under constant growth model is,

P0 = D1 / r-g

Where,

  • D1 is the Dividend for the next period or D0 * (1+g)
  • r is the required rate of return
  • g is the growth rate in dividends

P0 = 2.44 * (1+0.05)  /  (0.25 - 0.05)

P0 = $12.81

solong [7]4 years ago
4 0

Answer:

The market price of Cullumber stock should be $12.81.

Explanation:

To calculate the market price of Cullumber stock, we use the dividend discount model (DDM) formula stated as follows:

P = Next year dividend ÷ (r - g) ................................ (1)

Where,

P = stock market price = ?

Next year dividend = Do × (1 + 0.05) = $2.44  × 1.05 = $2.562

r = required return = 25% = 0.25

g = dividend growth rate = 5% = 0.05

These above values are now substituted into equation (1) as follows:

P = $2.562 ÷ (0.25 - 0.05) = $2.562 ÷ 0.20 = $12.81

Therefore, the market price of Cullumber stock should be $12.81.

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Explanation:

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3 years ago
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liubo4ka [24]

Answer:

Dealer Market

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In a dealer market, multiple dealers give out their various prices on the sales and purchases of their specific and particular security of instrument. It is a financial tool for dealers in the market. The dealer market becomes more efficient for financial securities because it provides superior mechanism which should be protected.

It enables buyers and sellers to buy and sell independently through the market makers, known as dealers.

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