Question

Given the information in the table,

Current dividend $6.00
Growth Rate in Dividends 2.50%
Required Return on Equity Rs 8.00%

According to the Gordon Growth Model, what is the $ amount of the Capital Gains or Loss between periods 2 and 3 ?

Answer 1

$111.82 (6*1.025)/(0.08-0.025) Price Price at year 3 Price at year 2 Capital gain $120.42 111.82*1.025A3 ] $117.48 [111.82*1.025^2] $2.94