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Elena L [17]
3 years ago
14

The Lost Continent Store pays a constant dividend. Last year, the dividend yield was 5.75 percent when the stock was selling for

$67.5 a share. What must the stock price be today if the market currently requires a 5.25 percent dividend yield on this stock?
Business
1 answer:
lozanna [386]3 years ago
3 0

Answer:

The stock price today must be $73.92

Explanation:

Price last year = $67.5  

Dividend yield = 5.75%  

Dividend yield = Dividend / Price of the stock

Dividend = Dividend yield * Price of the stock

Therefore,  dividend for last year = 67.5*5.75% = 3.8813

Dividend yield for now = 5.25%

Therefore price today = Dividend for last year / Dividend yield for now

= 3.8813 / 5.25%

= 73.9295

=$73.92

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Answer:

Price of stock = $49.5

Explanation:

<em>The Dividend Valuation Model(DVM) is a technique used to value the worth of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return. </em>

If dividend is expected to grow at a given rate , the value of a share is calculated using the formula below:  

Price of stock=Do (1+g)/(k-g)  

Do - dividend in the following year, K- requited rate of return , g- growth rate  

DATA:

D0- 2.7

g- 10%

K- 16%

Price of stock = ( 2.7×1.1)/(0.16-0.1) = 49.5

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