ABC, Inc. is expected to pay a dividend of $8.19 next year. The dividends are expected to grow at 2.38% each year forever. The required rate of return on the stock is 13.05%. What is today's price of the stock?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.
From the Dividend Discount model, Price of stock P (in case of Constant growth forever) is given by
P = Next year Dividend/ (required rate - growth rate)
= 8.19 / ( 0.1305-0.0238) (putting the values given)
=$ 76.75726
= $76.76 (rounded off to two decimal points)
So, today's price of the stock is $76.76
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