How much should you pay for a share of stock that offers a constant-growth rate of...
How much should you pay for a share of
stock that offers a constant-growth rate of 10%, requires a 16%
rate of return, and is expected to sell for $50 one year from
now?
A. $42.00
B. $45.00
C. $45.45
D. $47.00
Homework Answers
| C. $45.45 | |
| Dear Student | |
| Thank you for using Chegg | |
| Please find below the answer | |
| Statementshowing Computations | |
| Paticulars | Amount |
| D2 = (ke-g)P1 | |
| D2 = (16%-10%)*50 | |
| D2 = (6%)*50 | |
| D2 = 3 | |
| D1 = 3/1.10 | 2.7273 |
| P0 =D1/(ke-g) | |
| P0 =2.7273/(16%-10%) | |
| P0 =2.7273/6% | |
| P0 = 45.45 | |
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