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This is a Growing perpetuity formula. The stock of a firm will pay a dividend of...

This is a Growing perpetuity formula. The stock of a firm will pay a dividend of $5.4 a year from now. The dividend paid by the firm will increase at a rate 2% every year. The dividends are discounted at a rate of 9.90% every year. What is the price of the stock today?

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Answer #1

Present value of growing perpetuity=Dividend for year 1/(Discount rate-Growth Rate)

=5.4/(0.099-0.02)

which is equal to

=$68.35(Approx).

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