Question

A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 14.2%, then what is the stock price? a. $14.61 b. $12.10 c. $10.66 d. $12.70 e. $11.98

Answer 1

Answer:

. $11.98

Explanation:

D1 = D0(1+g)

D0 = Last dividend

r = Required rate of retrun

g = Growth rate

Stock price formula = D1/(r-g)

Stock price = D0(1+g)/(r-g)

Stock price = 1*(1+0.054) / (0.142-0.054)

Stock price = 1.054 / 0.088

Stock price = 11.97727273

Stock price = $11.98