High School

You own a stock of YouEmDee Inc. You know that they just paid a dividend of 1 USD. The growth rate of dividends for the next two years is 1%. Your required return on equity is 2% and remains 2% forever. What must the stock price be today?

A. 101 USD
B. 99 USD
C. 100 USD
D. 101.1 USD
E. There is not enough information to know the stock price
F. 99.9 USD

Answer :

Based on the calculations using the dividend discount model, the stock price today should be $1.9607. Therefore, the correct answer is not provided in the options given.

The stock price today can be determined using the dividend discount model (DDM). The DDM calculates the present value of future dividends to find the intrinsic value of a stock.

To calculate the stock price, we need to estimate the future dividends. We know that the dividend just paid is $1, and the growth rate of dividends for the next two years is 1%.

First, we calculate the dividends for the next two years:
Year 1 dividend = $1 * (1 + 1%) = $1.01
Year 2 dividend = $1.01 * (1 + 1%) = $1.0201

Next, we calculate the present value of these dividends using the required return on equity of 2%:
Present value of Year 1 dividend = $1.01 / (1 + 2%) = $0.9902
Present value of Year 2 dividend = $1.0201 / (1 + 2%)^2 = $0.9705

Finally, we sum up the present value of the dividends to find the stock price today:
Stock price today = Present value of Year 1 dividend + Present value of Year 2 dividend = $0.9902 + $0.9705 = $1.9607

To know more about dividend visit:

https://brainly.com/question/33428821

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