Question

Oxygen Optimization stock has an expected annual return of 11.33 percent. The stock is expected to...

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?

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Answer #1

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

Here,

Terminal Value at the end of Year 1 = $77.87

D1 = Dividend Yield(Current Stock Price)

D1 = 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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