A stock is not expected to pay dividends for the next ten years. Eleven years from today, the stock is expected to pay a dividend of $9.82 per share. Dividends will then grow at 4.50 percent per year indefinitely. The expected return on this stock is 11 percent. What is one share of the stock worth today?

$53.21

Explanation:

using the dividend dividend discount model, we can calculate the terminal value at the end of year 10:

the terminal value at the end of year 10 = $9.82 / (11% - 4.5%) = $9.82 / 6.5% = $151.08

the present value (today) = $151.08 / (1 + 11%)¹⁰ = $$151.08 / 2.83942 = $53.21

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answer; commerce clearing house;