Write Down the Equation for the Stock Price

Essay

Write down the equation for the stock price.Use this equation to answer the following:
a.Your stock broker calls to tell you she has a great deal on a stock.She gives you the following information: the real interest rate is 4 percent;the capital gain on this stock is 3.5 percent;and it pays $2.50 in dividends.How much should you pay for this stock?
b.The next day she calls back and tells you about another stock that is for sale (i.e. ,that is the market price)for $75.She doesn't know the dividend growth but she does know the dividend payment,$0.35 per share,and the real interest rate,4 percent.For you to buy this stock,how much annual dividend growth should you expect at that price?
c.A hot stock tip comes from a friend.The price of the stock is $50,the dividend gain is 2.5 percent,and you know the real interest rate from your previous two discussions with your broker.How much of a dividend payment will you want?