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paid an annual dividend of $2.10 yesterday. If future dividends are expected to grow at a...

paid an annual dividend of $2.10 yesterday. If future dividends are expected to grow at a rate of 8 percent, and the required rate of return on this stock is 15 percent, the fair price of this stock today is:

a.

$27.46

b.

$33.91

c.

$32.40

d.

$30.00
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Answer #1

As per Constant Growth Model,

Stock Price = D0(1 + g)/(r - g)

Stock Price = 2.10(1.08)/(0.15 - 0.08)

Stock Price = $3.40

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