14. The Financial System
Calculating Bond and Stock Prices
Multiple Choice
Multiple ChoiceStock Price = Divident (i - g) Where i = discount rate and g = dividend growth rate.
A stock currently pays a dividend of $1 per share. Dividends are expected to increase at a rate of 5% per year, while the discount rate is 8%. What is the current price of the stock?
A
$12.50
B
$20.00
C
$33.33
D
Cannot be determined
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