A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 12.5%, and the expected constant growth rate is g = 8.5%. What is its current price?

Question

Quizplus · Accepted Answer

Using the constant growth formula, we can find the current price of the stock:
Price = Dividend / (Required rate of return - Expected growth rate)
Price = 0.75 / (0.125 - 0.085)
Price = $18.75

A Stock Is Expected to Pay a Dividend of $0