Example 4: Constant Dividend Growth

SOLUTION IS NEEDED IN EXCEL FORMAT ONLY. (EXCEL FORMULA)

Unlike bond pricing, Excel does not have built-in functions for stock pricing, so we need to create our own equations. We will begin with constant growth in dividends. Suppose we have a stock with the following:

Current dividend:		$ 2.40
Dividend growth rate:		5.00%
Required return:		13.00%

With this growth rate, the dividend next year will be:

Dividend next year:

So, the stock price today with the constant dividend growth model is:

Stock price today: