Chris Anderson is interested in purchasing the common stock of Wildhorse, Inc., which is currently priced at $37.30. The company is expected to pay a dividend of $2.58 next year and to increase its dividend at a constant rate of 6.95 percent

(a) What should the market value of the stock be if the required rate of return is 14 percent? (Round answer to 2 decimal places e-g. 15.20.) $ Market value of stock

The market value of the stock is $36.60

Explanation:

The formula relevant to computing the market value of the stock is given as

Price=Dividend/(return rate-growth rate)

Dividend=$2.58

return rate =14%

growth rate =6.95%

Price=$2.58/(14%-6.95%)=36.59574468

Approximately $36.60

The market price forecast is based on the dividend yield and gains yield attributable to the stock in the future.

Besides, a stock that promises higher dividend yield and gains yield would priced higher by investors owing to its high returns capacity while the reverse is the case for a stock with lower returns.

No wonder the stocks of companies like Apple is highly priced,even from their  first day of listing on the stock exchange.

answerboth the short run phillips curve and the aggregate demand and aggregate supply model