how will the price of a stock be affected if the growth rate is increased

Expert Solution

Stock Price :
The price is a reflection of the company's value – what the public is willing to pay for a piece of the company. It is nothing but present value of cash flows ( Div & Sale Price of Stock at future date) from it.

P = D0( 1 + g) / [ Ke - g ]
D0 - Div today
P0 - Price Today
Ke - Required Ret
g - Growth rate

If the growth Rate is increased, Numerator will increase and denominator will decrease. Hence price of stock will increase.

jeff jeffy answered 2 years ago

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