Explore BrainMass
Share

# Given dividend and growth rate, what is market price of stock? Sharon Smith's annuity

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

1. An issue of common stock has just paid a dividend of \$3.75. Its growth rate is 8%. What is its price if the market's rate of return is 16%? (Show all work/calculations/formulas)

2. Sharon Smith will receive \$1 million in 50 years. The discount rate is 14. As an alternative, she can receive \$2,000 today. Which should she choose? Provide two solutions for this question. (Base your answer on present value calculations for the \$1 million, and future value calculations for the \$2,000. Use the tables in the back of your text, and show all work/calculations/formulas).

#### Solution Preview

Question 1:
Value of stock = \$3.75*(1+8%)/(16%-8%) = \$50.625

Question 2:
Future value of \$2,000 = ...

#### Solution Summary

Given dividend and growth rate, the solution determines the market price of stock.

\$2.19