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13 September, 06:44

is expected to pay a dividend of $2.60 and $2.24 over the next two years, respectively. After that, the company is expected to increase its annual dividend at 2.8 percent. What is the stock price today if the required return is 10.2 percent?

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  1. 13 September, 08:30
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    Answer: The stock prices for today are $35.14 and $30.27

    Explanation:

    Stock Price (P) = D1/{r-g}

    D1 = $2.6

    D2 = $2.24

    r = 10.2%

    g = 2.8%

    P1 = 2.6 / (0.102 - 0.028)

    P1 = 2.6/0.074

    P1 = $35.14

    P2 = 2.24 / (0.102 - 0.028)

    P2 = 2.24/0.074

    P2 = $30.27
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