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DochEvi [55]
3 years ago
6

Future Motors is expected to pay a $3.30 a share annual dividend next year. Dividends are expected to increase by 2.75 percent a

nnually. What is one share of this stock worth to you today if your required rate of return is 15 percent?
Business
1 answer:
sveta [45]3 years ago
3 0

Answer:

$26.94

Explanation:

We know,

Current stock price = P0 = \frac{D1}{ks - g}

Given,

expected dividend = $3.30

Growth rate, g = 2.75% = 0.0275

Required rate of return, ks = 0.15

Putting the values into the formula, we can get

Current stock price, P0 = \frac{3.30}{0.15 - 0.0275}

Or, Current stock price, P0 = \frac{3.30}{0.1225}

Therefore, Current stock price, P0 = $26.94

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