The Trust-worthy Bank had declared and paid a dividend of $2 last year.The dividend amount to shareholders is expected to grow at the rate of 10 percent while the minimum acceptable rate for the investors on the bank's stock is 15 percent.What is the price at which the stock of Trust-worthy bank must be valued at in the market?
A)$40
B)$44
C)$38
D)$22
E)$88

Question

Quizplus · Accepted Answer

We can use the dividend discount model to find the value of the stock:
$2 * (1 + 0.1) / (0.15 - 0.1) = $44
Therefore, the price at which the stock of Trust-worthy bank must be valued at in the market is $44. Option B is the correct answer.

The Trust-Worthy Bank Had Declared and Paid a Dividend of $2