VALUATION OF A CONSTANT GROWTH STOCK A stock is expected to pay a dividend of $3.00...

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Question

VALUATION OF A CONSTANT GROWTH STOCK A stock is expected to pay a dividend of $3.00 at the end of the year (i.e., Di = $3.00)

Answer 1

Answer #1

Current price=D1/(Required return-Growth rate)

=3/(0.15-0.06)

=$33.33(Approx).

Hence P2=Current price*(1+Growth Rate)^2

=33.33*(1.06)^2

=$37.45(Approx).

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Answer 2

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