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Compute the price of a company’s stock that just paid a dividend of $3.25 (that is,...

Compute the price of a company’s stock that just paid a dividend of $3.25 (that is, D0 = 3.25), assuming that the growth rate in dividends is expected to be 4.5% per year forever and that the required rate of return on this stock is 15.5%.

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Answer #1

Current price=D1/(Required return-Growth rate)

=(3.25*1.045)/(0.155-0.045)

which is equal to

=$30.875

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