1. How much should you pay for a share of stock that offers a constant growth...

1. How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $52.58 one year from now?

2. What is the value of Company X stock if the dividend next year will be $3 and is expected to grow at a rate of 4% forever if your required return is 10.42%

Solutions

Expert Solution

1.
P0=P1/(1+g)
=52.58/1.1=47.80

2.
P0=D1/(r-g)
=3/(10.42%-4%)=46.7289719626168

jeff jeffy answered 1 year ago

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