Use the Constant Dividend Growth Model to compute the expected price of a stock in 2...
Use the Constant Dividend Growth Model to compute the expected price of a stock in 2 years. Each share is expected to pay a dividend of $1.91 in one year. Investors' annual required rate of return is 16.2%, and the expected growth rate of the dividend is 5% per annum. Answer to the nearest penny.
Answer:
Homework Answers
P0 = D1 / (r - g)
P0 = $1.91 / (0.162 - 0.05)
P0 = $17.05357
P2 = P0(1 + g)^2
P2 = $17.05357(1 + 0.05)^2
P2 = $18.80
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