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serg [7]
3 years ago
6

Stoneheart Group is expected to pay a dividend of $3.17 next year. The company's dividend growth rate is expected to be 3.9 perc

ent indefinitely and investors require a return of 11.7 percent on the company's stock. What is the stock price?
Business
1 answer:
AleksAgata [21]3 years ago
8 0

Answer:

The price of the stock= 40.64

Explanation:

According to the dividend growth model, the price of a stock is the present value of expected dividend discounted at the required rate of return.

This is done as follows:

Price of a stock = D×(1+r)/(r-g)

D(1+g) - Dividend for next year = 3.17

g- growth rate - 3.9%

r- required rate of return - 11.7%

P = 3.17/(0.117- 0.039)=40.641

The price of the stock= 40.64

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