I need help with a math problem (show work)

label Mathematics
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Constant growth valuation [1 point]: 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.

Nov 18th, 2015

Thank you for the opportunity to help you with your question!

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

= $26


Please let me know if you need any clarification. I'm always happy to answer your questions.
Nov 18th, 2015

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