I need help with a math problem (show work)

Mathematics
Tutor: None Selected Time limit: 1 Day

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

Studypool's Notebank makes it easy to buy and sell old notes, study guides, reviews, etc.
Click to visit
The Notebank
...
Nov 18th, 2015
...
Nov 18th, 2015
Mar 31st, 2017
check_circle
Mark as Final Answer
check_circle
Unmark as Final Answer
check_circle
Final Answer

Secure Information

Content will be erased after question is completed.

check_circle
Final Answer