Learn the toughest concepts covered in your Macroeconomics class with step-by-step video tutorials and practice problems.

The Financial System

1

Calculating Stock and Bond Price

5m

Play a video:

2

Problem

Stock Price = Divident (i - g) Where i = discount rate and g = dividend growth rate.

A stock currently pays a dividend of $1 per share. Dividends are expected to increase at a rate of 5% per year, while the discount rate is 8%. What is the current price of the stock?

A

$12.50

B

$20.00

C

$33.33

D

Cannot be determined