Question

Oxygen Optimization stock has an expected annual return of 11.33 percent. The stock is expected to be priced at 77.87 dollars per share in 1 year and the stock currently has an expected dividend yield of 5.39 percent. What is the current price of the stock?

Answer #1

Current Price of Stock = PV(Dividend) + PV(Terminal Value)

Here,

Terminal Value at the end of Year 1 = $77.87

D_{1} = Dividend Yield(Current Stock Price)

D_{1} = 0.0539(Current Stock Price)

Current Price = 0.0539(Current Price)/(1.1133) + 77.87/(1.1133)

(1.1133)Current Price = 0.0539(Current Price) + 77.87

Current Price = 77.87/(1.1133 - 0.0539)

Current Price = $73.50

So,

**Current Stock Price = $73.50**

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