Answer: $32.10
Explanation:
Here is the complete question:
What is the value of a stock which has a current dividend (D0) of $1.50, and is growing at the rate of 7%? The investor's required rate of return is 12%. a. $26.75
b. $30.00
c. $32.10
d. $21.42
e. $13.38
Current dividend =D0 = $1.50
Growth rate = g= 7% = 0.07
D1 = D0 × (1+g)
D1 = $1.50 × (1 + 0.07)
= $1.50 × 1.07
= $1.605
The value of the stock will then be:
P0 = D1 / (r - g)
P0= $1.605/(0.12 - 0.07)
P0 = $1.605 / 0.05
P0 = $32.10
