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How much is a share of Bama Corporation stock expected to be worth one year from now, if you pay $80 per share today for this stock, the next dividend will be $4 per share, and your required rate of return on equity investment is 10%?Topic: One-period model for stock valuation; Equity Markets and Stock ValuationQuestion: How much is a share of Bama Corporation stock expected to be worth one year from now, if you pay $80 per share today for this stock, the next dividend will be $4 per share, and your required rate of return on equity investment is 10%? (show and label all calculations)

Question

How much is a share of Bama Corporation stock expected to be worth one year from now, if you pay $80 per share today for this stock, the next dividend will be $4 per share, and your required rate of return on equity investment is 10%?

Topic: One-period model for stock valuation; Equity Markets and Stock Valuation

Question: How much is a share of Bama Corporation stock expected to be worth one year from now, if you pay $80 per share today for this stock, the next dividend will be $4 per share, and your required rate of return on equity investment is 10%? (show and label all calculations)

check_circleAnswer
Step 1

According to the information provided, the stock has a current market price of $80, with a dividend of $4 next year and required rate of return of 10%.

Using single period Dividend Discount model

D+
1+r1
where,
P Value of the stock today
R-Value of the stock 1 year from now
Dividend next year
Di
r=required rate of return
help_outline

Image Transcriptionclose

D+ 1+r1 where, P Value of the stock today R-Value of the stock 1 year from now Dividend next year Di r=required rate of return

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Step 2

Putting the value in the above equatio...

4
80
1+0.10 10.10
80 3.63636363636364
1.10
P
= 76.3636363636364
1.10
help_outline

Image Transcriptionclose

4 80 1+0.10 10.10 80 3.63636363636364 1.10 P = 76.3636363636364 1.10

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