Question

Suppose current dividends on a stock are Php10 per shares which remain the same forever at 6.3% growth rate. If the required return rate is 8%, what is the price of the stock?

Answer 1

Let us say the purchase price is x,

Hence ;

Dividend yielded=(stock purchase price/dividend) * 100%.

8% =( 10+10*0.063/x)%

X = (10+10*0.063)/8

X=1.32875

X=1.33