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You are currently thinking about investing in a stock valued at $22 per share. The stock recently paid a dividend of $2.40 and its dividend is expected to grow at a rate of 4 percent for the foreseeable future. You normally require a return of 14 percent on stocks of similar risk. Is the stock overpriced, underpriced, or correctly priced

Respuesta :

Answer:

The DDM model is D*(1+g)/R-G

D=2.4

G= 4%

R= 14%

2.4*1.04/0.14-0.04 =24.96

According to DDM analysis the fair price of the stock would be $24.96 which means the stock currently is undervalued at the price of $22 by $2.96

Explanation:

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