Question
Dividend Growth Model and Stock Prices Altria stock (Ticker symbol MO, earlier called Phillip Morris) trades at a price of $47. Its next annual dividend
Dividend Growth Model and Stock Prices
Altria stock (Ticker symbol MO, earlier called Phillip Morris) trades at a price of $47. Its next annual dividend will be $3.6 and it has an expected growth of 5% a year.
A. Assuming a required return of 10% on MO stock, what should the price of MO be today?
B. What growth rate in dividends rationalizes the current price of $47? In other words, what growth rate gives the market price given the required return of 10%?
Please show the formula and the work, I am trying to learn the material. I cannot learn if one just plugs in numbers into excel. Thank you very much in advanced!
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