Answer to Question #167729 in Financial Math for Kate

Question

1. Calculate the price of Zachary Corp.'s common stock with the Dividend Growth Model given that dividends were $2.30 per share last year, are expected to grow 3% per year for the foreseeable future, and investors' required return is 14%. Calculate to 4 decimal places.
2. A.$21.54B.$20.91C.$12.48D.$14.35

Answer 1

Current stock price:

$P=\frac{D}{r-g}$

$g$ - growth rate expected for dividends

$r$ - rate of return

$D$ - value of next year's dividends

$P=\frac{2.3}{0.14-0.03}=20.91$ (Answer B)