Question

If earnings are expected to grow at a constant rate over time of 0.03 and investors' rate of discount is constant at 0.04, and if earnings last year were $152, then the fundamental value of the stock market would be_______

Answer 1

Answer:

The answer is $15,656

Explanation:

Formular: P = D * $\frac{1 + g}{k - g}$

P represent estimated stock price or value = ?

D represent last dividend paid = $152

k represent discount rate = 0.04

g represent growth rate = 0.03

Using the fomular above; P = $152 * $\frac{1 + 0.03}{0.04 - 0.03}$

P = $152 * $\frac{1.03}{0.01}$

P = $152 * 103 = $15,656

:. The fundamental value of the stock market would be $15,656