Question in practice a common way to value a share of stock, Ask an Expert

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Question: In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.26. The dividends are expected to grow at 11 percent over the next five years. The company has a payout ratio of 45 percent and a benchmark PE of 21. The required return is 13 percent.

What is the target stock price in five years?

What is the stock price today?

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Category:- Basic Finance
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