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Stock X will pay a dividend of $0.70 and is expected to grow at a rate...

Stock X will pay a dividend of $0.70 and is expected to grow at a rate of 24% between t = 1 and t = 2, after which it will continue to grow at a constant rate of 21%. The expected rate of return on the stock is 22%, what should be the stock price? Hint: Draw a time line with growth rates and dividends indicated.

$61.53

$66.63

$71.72

$76.81

$63.24

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Answer #1

Price=Present Value of Dividends=0.70/1.22+0.70*1.24/1.22^2+0.70*1.24/1.22^2*1.21/(22%-21%)
=71.72131148

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