Question
In: Finance
What is the value of a stock with current dividend paying $1, a growth rate of...
- What is the value of a stock with current dividend paying $1, a growth rate of 5% on the dividends, discount rate of 12% that will be held for 5 years and then sold at $18?
Solutions
Expert Solution
D1=(1*1.05)=1.05
D2=(1.05*1.05)=1.1025
D3=(1.1025*1.05)=1.157625
D4=(1.157625*1.05)=1.21550625
D5=(1.21550625*1.05)=1.27628156
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=1.05/1.12+1.1025/1.12^2+1.157625/1.12^3+1.21550625/1.12^4+1.27628156/1.12^5+18/1.12^5
=$14.35(Approx)
jeff jeffy answered 2 years agoRelated Solutions
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