A stock you are interested in paid a dividend of $1 per share last year.The anticipated growth rate in dividends and earnings is 25 percent for the next two years before settling down to a constant 5 percent growth rate.The discount rate is 12 percent.What is the current value of the stock?

Question

Quizplus · Accepted Answer

P₂ = ($1 × 1.25² × 1.05)/(.12 - .05)= $23.44P₀ = ($1 × 1.25)/1.12 + [($1 × 1.25²)+ $23.44]/1.12² = $21.05

A Stock You Are Interested in Paid a Dividend of $1