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Stock valuation

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.

Solution Preview

Using the dividend discount model, we first find the constant growth rate.

Po = ...

Solution Summary

The solution explains how to calculate the price of a stock using the dividend discount model.