Given the following data, what should the price of the stock be? Required return......... 10% Present dividend........

Question:

Given the following data, what should the price of the stock be?

Required return......... 10%

Growth rate ......... 5%

a) If the growth rate increases to 6 percent and the dividend remains $1, what should the stock’s price be?

b) If the required return declines to 9 percent and the dividend remains $1, what should the price of the stock be? If the stock is selling for $20, what does that imply?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...