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Asonia Co. will pay a dividend of $4.90, $9.05, $11.90, and $13.65 per share for each of the next four years, respectively. The company will then close its doors. If investors require a return of 11.7 percent on the company's stock, what is the stock price

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Respuesta :

Shahzaibfaraz

Answer:

P0 = $28.94716756 rounded of to $28.95

Explanation:

We can calculate the price of the stock today using the dividend discount model. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = D1 / (1+r)  +  D2 / (1+r)^2  + ... +  Dn / (1+r)^n

Where,

  • D1, D2, ... is dividend in year 1, year 2 and so on.
  • r is the required rate of return

P0 = 4.9 / (1+0.117)  +  9.05 / (1+0.117)^2  +  11.90 / (1+0.117)^3  +  

13.65 / (1+0.117)^4      

P0 = $28.94716756 rounded of to $28.95

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