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XYZ’s stock paid $2.00 dividend last year. The company’s earnings and dividends are expected to grow...

XYZ’s stock paid $2.00 dividend last year. The company’s earnings and dividends are expected to grow at an annual rate of 5%. Given its risk, if the investors’ required rate of return on the stock is 15%, what is the market value of XYZ’s stock?

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Answer #1

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

= (2*1.05)/(0.15-0.05)

which is equal to

=$21

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