Answer to Question #41648 in Finance for TARA
Given shareholders demand a 12% return on their investments, what is the price of the
stock today (t0)?
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
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