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    Stock Valuation

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    Hi, I have questions for 2 problems , can somebody please help ?
    thanks

    Problem 1. Your uncle is interested in buying a certain stock, which he says is undervalued and should be worth $35 per share. He has asked for your help. The stock's dividend, currently at $1.10, is expected to increase at a rate of 5% per year forever. What should the stock be worth today, assuming a required rate of return of 8.5%?

    Problem 2.
    You have been following two firms in the health care industry. You expect the dividend payment of both firms to grow at an annual rate of 5%. Dividend payments are currently $1.00. Stock E is priced at $10 today, and Stock F is priced at $11.20 today. What required rates of return were used to price these stocks?

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    Solution Preview

    The price of a stock is the present value of dividends and we can calculate it using the dividend discount model
    Price (MP) = D1/(Ke-g)
    where
    D1 = expected ...

    Solution Summary

    The solution explains how to calculate the price of a stock and also the required rate of return. The bond stock valuations are examined.

    $2.19

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