Question

What price would you pay today for a stock if you require a rate of return of 13%, the 6) dividend growth rate is 3.6%, and the firm recently paid an annual dividend of $2.50

Answer 1

Answer:

$27.55

Explanation:

Formula to determine the would be price=

Price = ( dividend × (1+growth rate)) divided by (rate of return - growth rate)

Price = ($2.50 × (1 +.036)/(0.13 - 0.036)

= (2.50 ×1.036)/(0.13 - 0.036)

= 2.59/0.094

price = $27.55