Question
Round Barn stock has a required return of 10.00% and is expected to pay a dividend of $4.15 next year. Investors expect a growth rate
Round Barn stock has a required return of 10.00% and is expected to pay a dividend of $4.15 next year. Investors expect a growth rate of 5.55% on the dividends for the foreseeable future.
a. What is the current fair price for the stock? (Round your answer to 2 decimal places.)
Current Fair Price:
b. Suppose the stock is selling at this price, but then investors revise their expectations. The new expectation for the growth rate is 4.60%. If investors are rational, what will be the new price for Round Barn stock? (Round your answer to 2 decimal places.)
New Price:
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Introduction To Derivatives And Risk Management
Authors: Robert Brooks, Don M Chance, Roberts Brooks
8th Edition
0324601212, 9780324601213
