Question

you find stock priced at $135 that is expected to pay a dividend of $2.24 next...

you find stock priced at $135 that is expected to pay a dividend of $2.24 next year. If the required return on the stock is 15%, what price will it need to reach next year to be worrh buying today?
A. $157.50
B. $155.25
C. $154.28
D. $153.00
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Answer #1
first we have to compute the dividend growth rate
dividend growth rate = Required rate - Expected dividend next year/Price today
15%-2.24/135
13.34%
Computation of price next year =
Price next year = Expected dividend in year 2/(required rate - Price today)
2.24*113.34%/(15%-13.34%)
$                        153.00
answer = option D) $                        153.00
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