Question
Suppose a stock has the following information: Required Return: 10% Dividend Paid Today: $1 Growth rate of dividends: 5% (a) Given the information what should
Suppose a stock has the following information: Required Return: 10% Dividend Paid Today: $1 Growth rate of dividends: 5% (a) Given the information what should the current stock price be? (b) If the growth rate of dividends increases to 6% and the dividend payment remains at $1. What should the stock price be? Comparing your answer to Part (a) what is the relationship between growth rate of dividends and stock price? (c) If the required rate of return decreases to 9% and the dividend remains at $1 what should the rice of the stock be? Comparing your answer to Part (a) what is the relationship between the required rate of return and stock price? [Assume that the growth rate of dividends is 5%]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started