# Dividend Discount Model

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?

$24.62

$29.99

$39.40

$41.83

$47.98

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#### Solution Preview

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 ...

#### Solution Summary

The solution explains how to calculate the future price of a stock using the dividend discount model

$2.19