Question

During an interview for a finance position, you are asked by the company about stock pricing. Naturally, the company wants to know if you have learned some basic valuation models. So the interviewer sets this up: A certain stock carries a dividend of $1.53 that hasn't changed in many years. It's believed shareholders want a required return of 5.8. What is a good estimate of this stock's price? Enter your response as a regular dollar stock price, rounded to the nearest cent. It has two decimals, in other words. Do not enter dollar signs, percent signs, or commas. For example, if you calculated $42.8972, you would enter for your answer, 42.90. Or if you calculated $103.4511, you would enter 103.45.

Answer 1

Estimate of stock price =Expected dividend/Rate of return

Estimate of stock price =1.53/5.8%

Estimate of stock price =26.38