Question

Rahman stock just paid a dividend of $3.00 per share. Future dividends are expected to grow at a constant rate of 6% per year. What is the value of the stock if the required return is 12%

Answer 1

Answer:value of stock for the required return of 12 % =  $53

Explanation:

Given

current dividend just paid = $3.00

dividend to grow at constant rate of 6%

required rate of return =12%

to calculate the value of stock for the requitred return of 12 % , we use the dividend growth model which is  

Current price = dividend ( 1 + growth rate )/ (required rate -growth rate )

                        = 3 x (1+6%) / 12-6 = 3 x 1.06 /6% =3.18/0.06=  $53

Therefore  value of stock for the requitred return of 12 % ,=  $53