One of the ways to value the share price of a stock is using the dividend valuation model. It consists of calculating the present value of all future dividends from the stock. Assuming a constant growth in future dividends, the formula for the price of stock today is:

P 0 = D 1 r g

where D1 is the annual dividend expected to be paid next year, r is the required rate of return for the stock, and g is the annual growth rate of future dividends.

For your initial discussion post, choose a stock that has paid a steady stream of dividends. Estimate the stock price using the dividend valuation model explained above. Make sure you use a reasonable required rate of return r (10-25%) that is greater than the dividend growth rate g.

Compare the estimated price with the current market price and comment on whether the current price is over-valued, fairly-valued, or under-valued. Provide some possible explanations as to why your estimated price is different from the current market price.