Answer to Question #41648 in Finance for TARA

Generally, investors buy common stocks for two reasons. Many stocks offer a cash dividend, and they also have the potential to provide a capital gain. In this publication, we will present a method for calculating stock prices based on a constant growth model, leveraging a discounted cash flows approach which considers both dividends and capital gains.
Expected Return = (Dividends Paid + Capital Gain) / Price of Stock
This expected return for a stock is also known as the market capitalization rate or discount rate. We're going to use all three terms interchangeably throughout our calculations and explanations in this article. Let's look at a quick example of how this formula works.
P(t3) = 1(1.05)/(0.12-0.05) = 15
P(t0)= (15+4)/1.12^3 = $13.52