You find a stock that just paid a dividend of $3.50 that is expected to grow...

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You find a stock that just paid a dividend of $3.50 that is expected to grow at 4% per year. If your required return is 12%,

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Answer 1

Answer #1

Dividend paid = D₀ = $3.50, Growth Rate = g = 4%, Required Return K_e = 12%

Expected Dividend = D₁ = 3.50 + 3.50 x 4% = 3.50 + 0.14 = $3.64

Price for the stock as per gordon's growth model = P₀ = D₁/(K_e-g)

= 3.64/(12%-4%)

= 3.64/8%

= $45.50

So, Answer is D i.e. $45.50

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Answer 2

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