Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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2) see picture
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
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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