Homework Answers
Using Constant Growth Model,
Stock Price = D1/(r - g)
a
Dividend growth rate = 5.5%
Stock Price = 2/(0.10 - 0.055)
Stock Price = $44.44
Dividend growth rate = 4%
Stock Price = 2/(0.10 - 0.04)
Stock Price = $33.33
Drop in Price = 44.44 - 33.33
Drop in Price = $11.11
b.
Stock Price = $33.33
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