76 804
Assignments Done
Successfully Done
In June 2019

Answer to Question #50103 in Finance for abdulla sabit

Question #50103
Explain the valuation formula for a constant growth stock.Explain how the formula for a zero growth stock is related to that for a constant growth stock.
Expert's answer
A constant growth stock is a stock whose dividends areexpected to grow at a constant rate in the future. The value of a constant
growth stock can be determined using the following formula
P0 = (D0 ( 1+g))/(r-g)= D1/(r-g)
P0 = the stock price at time 0,
D0 = the current dividend,
D1 = the next dividend (i.e., at time 1), g = the growthrate in dividends, and r = the required return on the stock, and g < r.
If there is no growth of dividends g will be equal 0:
P0 = (D0 ( 1+0))/(r-0)= D/r

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!


No comments. Be first!

Leave a comment

Ask Your question

Privacy policy Terms and Conditions