Sky High Co just paid a dividend of 13 per share on its stoc

Sky High Co. just paid a dividend of $1.3 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. If investors require an 11.5 percent return on Sky High Co. stock, the current price is $ _________ . Round it to two decimal places, and do not include the $ sign, e.g., 23.56.

Solution

Current price=D1/(Required return-Growth rate)

=(1.3*1.06)/(0.115-0.06)

which is equal to

=25.05(Approx).