This is my first time posting on this forum. If a company pays a quarterly dividend of $0.75, with a dividend growth rate of 6% per year (indefinitely), and with a required rate of return of 14%, what is the price of the stock?
I know I have to use the formula which states: Po=Do(1+g)/(r-g), where g=dividend growth rate, and r=required rate of return. Except I have to calculate the equivalent annual dividend of the 4 quarterly dividends.
I calculated that using:
And then I plugged Deq as Do. I used 6% as g and 14% as r. I got $41.89 as the answer, but the textbook has $41.78 as the answer.
Where did I go wrong?