Question

You own 100 shares of ABC Inc. ABC will pay a dividend of $2 1 year...

You own 100 shares of ABC Inc. ABC will pay a dividend of $2 1 year from today and it will then pay a final liquidating dividend of $140 2 years from today. The required rate of return on ABC stock is 9.4 percent per year compounded annually. What is the price of ABC stock today?

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Answer #1
As per dividend discount model, current share price is the present value of future dividends which is calculated as follows:
Year Dividend Discount factor Present Value
a b c=1.094^-a d=b*c
1 $             2 0.914077 $       1.83
2 $        140 0.835536 $ 116.98
Total $ 118.80
So,
Price of stock today is $ 118.80
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