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What is the intrinsic value of stock C in the following statement?

You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks is expected to pay a dividend of $2 in the upcoming year. Thee expected growth rate of dividends is 9% for stock C and 10% for stock D.

Asked by Kaushalmandalia, Last updated: Feb 29, 2024

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kaushalmandalia

kaushalmandalia

kaushalmandalia
Kaushalmandalia

Answered Feb 26, 2018

Will be less than the intrinsic value of stock D

PV0 = D1/(k-g); given that dividends are equal, the stock with the higher growth rate will have the higher value.
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