A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10%, and the constant growth rate is g = 4.0%. What is the current stock price?
Please show work so I can work through my practice problems.
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Price of stock = Next year Dividend / (Required return - Growth rate)
= [Current dividend x (1 + growth rate)] / (Required return - Growth rate)
P0 = [D0 x (1 + g)] / (rs - g)
= [$1.50 x 1.04] / [0.10 - 0.04]
= $1.56 / 0.06
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