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Recall that we used the formula Div/r to find the present value of dividends for an income stock that is not expecting its dividends to
Recall that we used the formula Div/r to find the present value of dividends for an "income" stock that is not expecting its dividends to rise or fall (as opposed to growth stocks where we would use the formula div1/(r-g)). So let's assume we are valuing an income stock that anticipates a $2 annual dividend per share and we are in a world where safe bonds pay 5% interest and investors want 6% additional return for stocks since they are riskier so that the price of the stock is roughly $18.20. Then macro conditions change, and the Fed lowers rates, so safe bonds pay 2% interest. What should the share price be after that? Just give the price with no $ sign
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