You are considering purchasing stock in a company that is expected to pay a $ 2.63 dividend later this year and you require a return of 17.17%. Assume the dividend will continue to be paid each year thereafter and will grow every year as described below. What is the maximum price you would be willing to pay if you expect a growth rate of 2% ? $ number with two decimal places, such as 10.19.) What is the maximum price you would be willing to pay if you expect a growth rate of 5%? $ (Enter as a whole What is the maximum price you would be willing to pay if you expect a growth rate of 7% ? $[ What is the relationship between the price of a stock and the firm's growth rate? OA. There is no relationship. B. The stock price is exactly equal to the growth rate times the dividend. c. As the growth rate investors expect increases, the price they are willing to pay also increases. D. As the growth rate investors expect increases, the price they are willing to pay decreases.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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