Can somebody, please solve the following Finance problem:?

Question

Pasqually Mineral Water, Inc will pay a quarterly dividend per share of $ 1 at the end of each of the next 12 quarters. Thereafter , the dividend will grow at a quarterly rate of .05 %, forever. The appropriate rate of return on the stock is 10 %, compounded quarterly . What is the current stock price?

Please , provide a detaled solution with explanations. Thank you soooo much !!!

Please, do answer if you don;t have the solution. All am tyring to do is to understand the the theory by looking at a practiacal solution , working backward is sometimes helpful. I do not understand theory !

Answer 1

Sorry but we're not going to do your homework for you! But speaking as a professor who has taught finance, let me say that you can turn to the dividend growth model as a way to value a stock.

KEY here is that you cannot calculate the stock's price, but rather the stock's intrinsic value. Intrinsic value means what the stock is "truly worth" based on the dividend, dividend's growth rate, and discount rate.

You would then compare this value to the actual stock's price to see if it's a worthwhile investment. If the stock's price is below intrinsic value, then it's a "bargain" because it's worth "more!" But if it's price is higher, then it's worth less, so it's not worth buying.

So how do you calculate intrinsic value? Well you essentially discount the future dividends by the discount rate to get the present value. Present value is the value today of money you'll get in the future.

What you need to do here is calculate the increased dividend, factoring in the growth rate. And then you'd discount this by your discount rate.

Answer 2

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