Question

the

company

Old

Co has a

current stock

price of $210 per share

. L

ast year

they

paid an

annual dividend of $10 per share. Historically the dividend growth was 5% per year

;

the next

dividend

payment will be $

1

0.50

. What is the discount rate implied by this firm?

Answer 1

The formula for share price is:$P = D0*(1 + g)/(r - g)$,

$r = D0*(1 + g)/P + g = 10*1.05/210 + 0.05 = 0.1.$