What would you pay today for a stock that is expected to make a $1.50 dividend in one year if the expected dividend growth rate is 5% and you require a 11.6% return on your investment? a) $12.93. b) $13.58. c) $23.86. d) $22.73. e) $29.33.
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The formula is: $$P_0 = \frac{D_1}{r - g}$$ where: $P_0$ = Current stock price $D_1$ = Expected dividend in one year $r$ = Required rate of return $g$ = Dividend growth rate Show more…
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