Answer:
Price of stock today = $53.29
Explanation
The Dividend Valuation Model(DVM) is a technique used to value the worth of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return.
This model would be applied as follows:
PV from year 1 to 3
Year Present Value ( PV)
1 1.25 × 1.275 × 1.1^(-1) = 1.4358
2 1.25 × 1.275^2 × 1.1^(-2) = 1.6492
3 1.25 × 1.275^3 × 1.1^(-3) = 1.894
Total 4.979
Year 4 and beyond
This will be done in two steps
Step 1
D× (1+g)/k-g
1.25 ×1.275^4/(0.11-0.06)
=66.066
Step 2
Present Value in year 0
=66.066 × 1.11^(-3) = 48.3068
Total present value = 4.979 + 48.306= 53.286
Price of stock today = $53.29
