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A common stock pays annual dividend per share of $2.10. The risk-free rate is 6% and the risk premium for this stock is 4%. The annual dividend is expected to remain at $2.10. What is the value of the stock

Answer :

Answer:

The value of the stock is $21 a

Explanation:

The computation of the value of the stock is shown below:

Cost of equity, Ke is

= 6% + 4%

= 10%

And,

the value of the stock is

= Constant dividend ÷  Ke

= $2.10 ÷ 10%

= $21

Hence, the value of the stock is $21 and the same is to be considered

We simply applied the above formula so that the correct value could come

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