Question

What will you pay today for a stock that is expected to make a P45.00 dividend in one year if the expected dividend rate is 5% and you require a 12% return on your investment?

(with Solution pleasee)​

Answer 1

Answer:

dividend in year1(D1)=45

dividend rate (g)=5%

required return (ks)=12%

price of stock today (p0)=?

now

P0=D1/ks-g

45/0.12-0.05

643√

Answer 2

Given: dividend = 45.00, time = 1 year, dividend rate = 5%, required return =                                      12%

To find: Price of stock today

Solution:

Dividend in one year => D1 = 45.00  

Dividend rate => g = 5%  

Required return => ks =12%

Now,

P0 = D1 / ks - g  

     = 45.00 / (0.12 - 0.05)  =   45.00 / 0.07

     = 4500 / 7

     = 642.86

Price of stock today => P0 = 642.86 bucks