Question

An issue of common stock has just paid a dividend of $2.00. Its growth rate is equal to 4%. If the required rate of return is 7%, what is its current price

Answer 1

Answer:

$69.33

Explanation:

The current stock price in DDM = D1/r-g

Where D1= Dividend at year 1 = Current dividend (1+ growth rate)

D1= $2 (1+ 4%)= $2.08

R = Required rate of return= .07

Current Stock price= $2.08/0.07 - 0.04

Current Stock price= $2.08/ 0.03

Current Stock price= $69.33