The formula to calculate the Price of Stock (P) is:
\[ P = \frac{D1}{(\%RoR \cdot 0.01) - g} \]
Where:
Price of Stock is the price of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
Estimated Dividends for Next Period is the estimated distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders for the next period.
Rate of Return is the gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s cost.
Growth Rate refers to the percentage change of a specific variable within a specific time period, given a certain context.
Let's assume the following values:
Using the formula:
\[ P = \frac{D1}{(\%RoR \cdot 0.01) - g} \]
Evaluating:
\[ P = \frac{0.25}{(4.5 \cdot 0.01) - 0.02} \]
The Price of Stock is 10.
| Estimated Dividends for Next Period | Rate of Return (%) | Growth Rate | Price of Stock |
|---|---|---|---|
| 0.2 | 4.5 | 0.02 | 8.00 |
| 0.25 | 4.5 | 0.02 | 10.00 |
| 0.3 | 4.5 | 0.02 | 12.00 |
| 0.35 | 4.5 | 0.02 | 14.00 |
| 0.4 | 4.5 | 0.02 | 16.00 |
| 0.45 | 4.5 | 0.02 | 18.00 |
| 0.5 | 4.5 | 0.02 | 20.00 |
| 0.55 | 4.5 | 0.02 | 22.00 |
| 0.6 | 4.5 | 0.02 | 24.00 |
| 0.65 | 4.5 | 0.02 | 26.00 |
| 0.7 | 4.5 | 0.02 | 28.00 |
| 0.75 | 4.5 | 0.02 | 30.00 |
| 0.8 | 4.5 | 0.02 | 32.00 |
| 0.85 | 4.5 | 0.02 | 34.00 |
| 0.9 | 4.5 | 0.02 | 36.00 |
| 0.95 | 4.5 | 0.02 | 38.00 |