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Holmgren Hotels’ stock has a required return of 8 percent. The stock currently pays a dividend of $1.00 per share. The dividend is expected to stay the same for two years. After two years, the dividend is expected to grow at a rate of 6 percent forever. What should be Holmgren’s stock price today?

Respuesta :

jepessoa

Answer:

$48.09

Explanation:

using the constant growth model, we can determine the price of the stock in two years:

stock price = $1/1.08 + $1/1.08² + [($1 x 1.08)/(8% - 6%)] /1.08²

  • the constant growth formula = ($1 x 1.08)/(8% - 6%) = $54

stock price = $1/1.08 + $1/1.08² + $54/1.08² = $0.93 + $0.86 + $46.30 = $48.09

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