Question

A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%.

What is the stock's current price?

a. $17.39

b. $17.84

c. $18.29

d. $18.75

e. $19.22

Answer 1

Answer:

correct option is c. $18.29

Explanation:

given data

dividend = $0.75

rate of return is rs = 10.5% = 0.105

constant growth rate  g = 6.4%  = 0.064

to find out

stock's current price

solution

we know that current price formula that is

current price P = dividend ÷ (rs - g)    ......................1

put here value we get

current price P = $\frac{0.75}{(0.105-0.064)}$

current price P = $18.29

so correct option is c. $18.29

Answer 2

Based on the dividend coming at the end of the year, the price of the stock is c. $18.29.

You can solve this by using the Gordon Growth model:

Price of stock = Next dividend / (Required rate of return - Growth rate)

Solving the equation would give:

= 0.75 / (10.5% - 6.4%)

= 0.75 / 4.1%

= $18.29

In conclusion, the stock current price is $18.29

Find out more at https://brainly.com/question/16211224.