A stock currently sells for $28 a share. Its dividend is growing at a constant rate, and its dividend yield is 5 percent. The required rate of return on the company's stock is expected to remain constant at 13 percent. What is the expected stock price, seven years from now?
We first find the dividend now. The dividend yield is 5% and the price is 28. The dividend amount is 28X5%=1.4. Next we calculate the expected growth rate in ...
The solution explains how to calculate the future price of a stock using the dividend discount model