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Sergeu [11.5K]
3 years ago
12

If a stock has a required return of "r", its next dividend is expected to be "DIV1", and its dividends are expected to grow at a

constant rate "g" thereafter, then its current share price "P0" can be determined by __________. P0=DIV1/(r-g) P0=DIV1 x (r-g) P0=P1/r P0=DIV1/r
Mathematics
1 answer:
Kryger [21]3 years ago
5 0

Answer:

The correct formula is P_0=\dfrac{DI V_1}{(r-g)}

Step-by-step explanation:

\text{Current share price}=\frac{\text{Estimated dividend for next month}}{\text{Required rate of return - constant growth rate}}

Here,

Required rate = r,

Growth rate = g,

Estimated dividend for next month = DIV_1

Current share price = P_0

By substituting the values in the above formula,

P_0=\dfrac{DI V_1}{(r-g)}

Hence, the correct formula of current share is,

P_0=\dfrac{DI V_1}{(r-g)}

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