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Current price of a share

Consider the stock of Davidson Company, which will pay an annual dividend of $2 one year from today. The dividend will grow at a constant annual rate of 5 percent, forever. The market requires a 12 percent return on the company's stock.

a. What is the current price of a share of the stock?
b. What will the stock price be 10 years from today?

Solution Preview

What is the current price of a share of the stock?
Po=Div1/(ke-g)
ke=cost of ...

Solution Summary

This provides the steps to compute the current price of a share

$2.19