Question

A company just paid a dividend of $1.30 per share. The consensus forecast of financial analysts is a dividend of $1.70 per share next year and $2.30 per share two years from now. Thereafter, you expect the dividend to grow 4% per year indefinitely into the future. If the required rate of return is 11% per year, what would be a fair price for this stock today? (Answer to the nearest penny.)

Answer #1

Expected Dividend one year from now(D1) = $1.70

Expected Dividend two year from now(D2) = $2.30

Therafter, Dividend will grow at a constant rate(g) = 4% per year forever

Required return(ke) = 11%

Calculating the Price of Stock:-

P0 = $1.532 + $1.867 + $27.734

P0 = $31.13

**So, fair price for this stock today is
$31.13**

*If you need any clarification, you can ask in
comments. *

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