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14.07.2022 - 14:29

How to calculate the value of a share of stock when the dividend grows at a constant rate?

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How to calculate the value of a share of stock when the dividend grows at a constant rate?

Answers (1)

Eula April 15, 2023 в 15:48

The value of a share of stock can be calculated using the constant growth formula. This formula takes into account the dividend per share, the required rate of return, and the expected growth rate of the dividend. The formula is: V = D / (r - g) Where V is the value of the stock, D is the dividend per share, r is the required rate of return, and g is the expected growth rate of the dividend. For example, if a stock has a dividend of $2 per share, a required rate of return of 10%, and an expected growth rate of 5%, the value of the stock would be: V = $2 / (0.10 - 0.05) = $40 This means that the stock is currently priced at $40 per share, based on the expected future dividends and required rate of return.

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