Answer to Question #278175 in Financial Math for iii

Question

A php 300 per share dividend was paid by a certain stock. The dividend is estimated to grow at 4.75% per year until further notice. What is the price of the stock today if the required return is 8.75%

Answer 1

The price of a stock is calculated as

$P=\dfrac{D_1}{r-g}$

Therefore, if a stock paid 300 in dividends and the dividends are expected to grow at the rate of 4.75% per year, the price of the stock if the rate of return is 8.75% is equal to

$P=\dfrac{300}{0.0875-0.0475}\\[0.3cm] P=\boxed{7500}$