If you expected a stock price to be 55 SAR, 5% is the dividends’ growth rate, and this stock pay dividends of 2 SAR.

If you expected a stock price to be 55 SAR, 5% is the dividends’ growth rate, and this stock pay dividends of 2 SAR. What is the discount rate? 2- If the dividends’ growth rate is 2%, and this stock pay current dividends (D0) of 2 SAR, discount rate is 4%. Calculate the value of this stock.

Expert Solution

Discount rate = Dividend*(1+growth rate)/ Price + growth rate

= 2*(1+5%)/55+ 5%

= 3.818182%+ 5%

= 8.818182% rounded off to 8.82%

So, discount rate is 8.818182% rounded off to 8.82%.

Stock price = Dividend*(1+growth rate)/ (Discount rate-growth rate)

= 2*(1+2%)/(4%-2%)

= 2.04/ 2%

= SAR 102

So, the stock price is SAR 102.

So, discount rate is 8.818182% rounded off to 8.82%.

So, the stock price is SAR 102.

Umair answered 2 years ago

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