XYZ stock currently sells for $50 per share. The next expected annual dividend is $2, and...

Question

Question

XYZ stock currently sells for $50 per share. The next expected annual dividend is $2, and the growth rate is 6%. What is the

Answer 1

Answer #1

This question requires application of constant growth dividend discount model according to which: Div Po r-g Po Price of Stoc

$50 = \frac{2}{r - 0.06}$

r - 0.06 = 0.04

r = 0.10

r = 10.00% ---> Answer

$P_0 = \frac{2}{0.12 - 0.06}$

P_0 = 33.33 ---> Answer

Dividend Yield = Annual dividend/Current Price = $2/$33.33 = 6%

Answer 2

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