Junior is considering an investment in the shares of BlackRockCorp. The expected dividend next year is...
Junior is considering an investment in the shares of BlackRockCorp. The expected dividend next year is $1.75, and dividends are expected to grow at 2% forever. If the discount rate is 6.5%, what is a fair price for one share?
Homework Answers
Ans:- Price of the share P0 will be given by D1 / (r - g), where D1 is the expected dividend next year, r is the discount rate and g is the growth rate.
D1=$1.75, r=6.5%=0.065 and g = 2%=0.02
P0 = $1.75 / (0.065 - 0.02) = $38.89
Therefore, the share price of Black Rock Corp is $38.89
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