Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Tresnan Brothers is expected to pay a $2.50 per share dividend at the end of the year (i.e., D1 = $2.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 18%. What is the stock's current value per share? Round your answer to two decimal places. %24
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Transcribed Image Text:Tresnan Brothers is expected to pay a $2.50 per share dividend at the end of the year (i.e., D1 = $2.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 18%. What is the stock's current value per share? Round your answer to two decimal places. %24
Expert Solution
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Step 1

Formula to calculate current value of the stock is:

P=D1/r - g

Where P is the price of the stock

D1 at the end of the first year

r is the rate of return

g is the growth rate

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