Consider the stock of Morgan Stanley., whose last dividend was $2.25. If the growth rate in dividends is 3.2% what is a fair price for Morgan Stanley stock if the market requires a 7.8% return on company's stock?
Ans $ 50.48
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| P0 = | 2.3220 / (7.8%- 3.2%) |
| P0 = | 50.48 |
| D1 = | D0* (1 + g) |
| D1 = | 2.25* (1 + 3.2%) |
| D1 = | 2.3220 |
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