An investor is considering the purchase of a share of the Utah Mining Company. T

Question

An investor is considering the purchase of a share of the Utah Mining Company. The stock will pay a $3.57 dividend per year, beginning one year from today. This dividend is expected to grow at 11.55% per year for the foreseeable future. The investor thinks that the required return on the stock is 15% per year, based on her assessment of its risk. Based on this information, what is the price of one share of Utah Mining Stock? Hint: apply the constant dividend growth model. Careful! You are already given the expected dividend in one year. Do not round at intermediate steps in your calculation. Round to two decimal places. Do not type the $ symbol.

Explanation / Answer

Current price=D1/(Required return-Growth rate)

=$3.57/(0.15-0.1155)

which is equal to

=103.48(Approx).

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