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What is the value of HM stock which currently has a dividend of $2 and is growing at 7 percent? The investor’s required rate of return is 11 percent.$46.25$50.50$52.7553.50

Respuesta :

Shahzaibfaraz

Answer:

The value of the stock today is $53.50

Explanation:

The stock is a constant growth stock which means that the constant growth model of the DDM will be used to calculate the price of the stock today. Under the constant growth model, the price/value of the stock today is,

Price or Value today = D0 * (1+g)  /  (r - g)

Where,

  • D0 * (1+g) is D1 or the dividend expected for the next period.
  • r is the required rate of return
  • g is the growth rate in dividends

Value today = 2 * (1+0.07) / (0.11 - 0.07)

Value today = $53.5

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