Bolwork Inc. is expected to pay a dividend of $5 per share next year. Bolwork's dividends are expected to grow by 3 percent annually. The required rate of return for Bolwork stock is 15 percent.Based on the dividend discount model, a fair value for Bolwork stock is $____ per share.
A) 33.33
B) 166.67
C) 41.67
D) 60

Question

Quizplus · Accepted Answer

The fair value of the stock using the dividend discount model is calculated as D1 / (r - g) = $5 / (0.15 - 0.03) = $41.67.