Question

A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is r s = 10%, and the expected constant growth rate is 5%. What is the current stock price?

Answer 1

Given,

Expected dividend = $ 1

Rate of return = 10% or 0.10

Growth rate = 5% or 0.05

Solution :-

Current Stock price Expected dividend - date of return- growth rate $ 1 0.100.05 – $20 & I 0.05 So, the current stock price is $20