The current price of ADM's stock, Po, is $20 and the company is expected to pay a $2.20 dividend next year. If the appropriate required rate of return for ADM's stock is 15 percent, what should be the price of the stock in one year, P-hat sub 1? Assume that the company has achieved constant growth.
Using the dividend discount model, we first find the constant growth rate.
Po = ...
The solution explains how to calculate the price of a stock using the dividend discount model.