Basic trade postion oral exam put somebody through the mill?
Any one know the answer to this? How to work it out? I need to answer a few question for a financial position and this is one I'm completely stuck on
A share of common stock have just salaried a dividend of $2.00. If the expected long-run growth rate is 15 perfect and if investors require a 19 percent rate of return, what is the price of the stock?
a) 57.50
b) 62.25
c) 71.86
d) 64.00
e) 44.92
THANKS!
Answers: This follows the underlying dividend discount formula.
It states that the price today is the current dividend ($2) multiplied by the LT growth rate (15%), and then divided by the difference of the required return (19%) and the growth rate (15%).
So, Price = $2 (1.15) / (.19-.15) = $57.50...choice A.
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A share of common stock have just salaried a dividend of $2.00. If the expected long-run growth rate is 15 perfect and if investors require a 19 percent rate of return, what is the price of the stock?
a) 57.50
b) 62.25
c) 71.86
d) 64.00
e) 44.92
THANKS!
Answers: This follows the underlying dividend discount formula.
It states that the price today is the current dividend ($2) multiplied by the LT growth rate (15%), and then divided by the difference of the required return (19%) and the growth rate (15%).
So, Price = $2 (1.15) / (.19-.15) = $57.50...choice A.