Question

What should be the current price of a stock if the expected dividend is $4.00, the stock has a required return of 15%, and a constant dividend growth rate of 5%?

Answer 1

Answer:

current price of stock = $40

Explanation:

given data

expected dividend = $4.00

required return = 15% = 0.15

growth rate = 5% = 0.05

to find out

current price of stock

solution

we get here current price of stock that is express as

current price of stock = $\frac{D}{r-g}$   ....................1

here r is required return and g is growth rate and D is expected dividend

put here value in equation 1 we get

current price of stock = $\frac{4}{0.15-0.05}$

current price of stock = $40