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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%?

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