Question

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Question 1 20 pts Given the information in the table, Current dividend $6.00 Growth Rate in Dividends 2.50% Required Return on Equity Rs 4.00% According to the Gordon Growth Model, what is the $ amount of the Capital Gains or Loss between periods 1 and 2 ? $10.16 O $10.67 O $10.75 o $10.51

Answer 1

Using Constant Growth Model,

Stock Price in Year 1 = 6(1.025)²/(0.04 - 0.025) = $420.25

Stock Price in Year 2 = 6(1.025)³/(0.04 - 0.025) = $430.76

Capital Gain = 430.76 - 420.25

Capital Gain = $10.51