Question

A stock is expected to pay a dividend (D1) of $1.10 at the end of the year. The required rate of return is rs = 8.0%, and the expected constant growth rate is g = 5.40%. What is the stock's current price? $27.39 $42.31 $38.29 $48.75 $41.22

Answer 1

Answer:

$42.31

Explanation:

Given that,

stock is expected to pay a dividend (D1) at the end of the year = $1.10

Required rate of return, rs = 8.0 percent

Expected constant growth rate, g = 5.40 percent

Stock's current price:

= D1 ÷ (rs - g)

= $1.10 ÷ (0.080 - 0.054)

= $1.10 ÷ 0.026

= $42.307 or $42.31

Therefore, the stock's current price is $42.31.