In: Finance
QUESTION 1
A company just paid a dividend of $1.40 per share. The consensus forecast of financial analysts is a dividend of $1.60 per share next year, $2.30 per share two years from now, and $2.60 per share in three years. You expect the price of the stock to be $25 in two years. If the required rate of return is 9% per year, what would be a fair price for this stock today? (Answer to the nearest penny.)
Discount rate | 9.0000% | ||
Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
- | 0 | - | - |
1.600 | 1 | 1.47 | 1.47 |
2.300 | 2 | 1.94 | 3.40 |
25.000 | 2 | 21.04 | 24.45 |
Fair price of the stock = 24.45