Question

In one year, Bold Betties Inc. will pay a $5 per share dividend and it is expected to grow by 4 percent per year. If the required return on this stock is 14 percent, what is the current stock price?

Answer 1

$50

Step-by-step explanation:

To find the answer, we use the current stock price formula:

Stock price = stock's net annual dividend / (required return - dividend growth rate)

Now, we plug the amounts into the formula

Stock price = $5 / (0.14 - 0.04

Stock price = $50