A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for...

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A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for...

A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%,what is the stock price?

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Answer 1

Answer #1

, where iis the required rate of return and g is the growth rate. The dividend in this model is the value of the next dividend that will be paid.Since the current dividend is $1, the next one will be 1*(1.054) = 1.054

Stock Price = 1.054/(.114 - .054) = 17.57

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