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Equity valution for Bank of America (BAC) stock: dividend gr

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You are considering an investment in Bank of America (BAC, NYSE).
From your analysis, you believe this stock should be valued so as to produce a 9.5 percent long-term rate of return.

Using the current stock price, determine the value of the stock using

a. The ten-year historical dividend growth rate

b. The consensus analyst five-year forecasted growth rate from Yahoo! Finance

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Solution Summary

This solution helps with problems involving dividend and forecasted growth rates.

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a.
value of the stock using 10 years historical dividend growth rate
10-years dividend growth rate
= [(div 2011 - div 1991)/div 1991/10
= [(0.01- 0.28)/0.28]/10
= -9.643%

the value of stock this year = 13.45
13.45 * (1-0.09643) = $14.89
then discounted ...

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