Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are expected to increase by 5% annually. What is one share of this stock worth to you today if the appropriate
Discount rate is 14%?

Question

Quizplus · Accepted Answer

We can use the dividend discount model to calculate the current stock price:
P = D / (r - g)
where P is the stock price, D is the dividend, r is the discount rate, and g is the growth rate of dividends.

Plugging in the values, we get:
P = 1 / (0.14 - 0.05) = 11.67

Therefore, one share of this stock is worth $11.67 to you today, which is option D.

Lee Hong Imports Paid a $1