Theoretical Stock Price

Extra Credit

Problem: Choose two stocks that pay dividends.

1. Calculate the theoretical price for the stocks.  To do this you will need:

a. the required rate of return

b. the growth rate

c. to get the growth rate you will need the ROE and the profit retention rate

2. The prices you calculate in (1) will probably be different than the current price of the stock.

a. Why?  To answer this well, you may want to compute what the g or r need to be in order to equal the current price

b. Compare your answer to (a) with what you used in (1)