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    Mrsboyd1's Avatar
    Mrsboyd1 Posts: 3, Reputation: 1
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    #1

    Oct 15, 2010, 05:12 PM
    Expected stock price
    I tried doing the question I ask. This is what I came up with.

    E(Re) = $2.40 * [1 + 12%] / $36
    E(Re) = $2.40 * [1.12] / $36
    E(Re) = $2.69 / $36
    E(Re) = 0.07472
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Oct 18, 2010, 09:57 AM
    In a situation where dividends are expected to grow indefinitely at some constant rate, it's common to estimate the stock's value with the model...

    where denote, respectively, the current price, the next expected dividend, the appropriate discount rate, and the expected growth rate. The next dividend can be expressed as a function of the growth rate g and the most recent dividend , and so the model can be rendered as

    ... which with your knowns becomes



    Solve for g, apply that growth rate to the current price for a 5-year growth period, and call it a day.
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #3

    Oct 18, 2010, 10:02 AM
    Okay, since I can't seem to find an Edit command anywhere, the second instance of the formula above should read

    .

    My bad.
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