The price of any security is nothing but the PV of Cash flows that are discounted at the required rate of Ret(Ke )Price = D1 / [ Ke - g ] = $ 1.5 / [ 16 % - 3 % ] = $ 1.5 / [ 13 % ] = $ 11.54.So, the Price of Stock today is $ 11.54.
The dividend rate of growth is the annualized share rate of growth that a selected stock's dividend undergoes over an amount of time. several mature firms ask to extend the dividends paid to their investors on a daily basis. Knowing the dividend growth rate may be a key input for stock valuation models identified as dividend discount models.
Being ready to calculate the dividend growth rate is important for the victimization of the dividend discount model. The dividend discount model is a kind of security-pricing model. The dividend discount model assumes that the calculable future dividends–discounted by the surplus of internal growth over the company's estimated dividend growth rate–determine a given stock's price.
If the dividend discount model procedure ends up in the next variety than the current price of a company’s shares, the model considers the stock undervalued. Investors who use the dividend discount model believe that by estimating the expectation of money flow within the future, they'll realize the intrinsic value of a specific stock.
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