GROWT RATE 7% and just paid dividend 6.25 if required rate of return is 12% , what will be the price for stock will sell for two years from now based on ddm ? mine is ddm : p0=6.25/(12%-7%)=125 two year later p2=125*1.12*1.12-6.25*1.07/1.12-6.25*1.07*1.07/1.12^2 but answer is 153.13 ???
because you don’t take the time value factor into consideration (says 2 years from now).
wouldn’t you simply calculate D3 and then P2 = D3 / (k - g)?
2 years from now… so you need the D3 which would be 6.25*(1.07)^3 Now that divided by (.12-0.07) = 153.13