The annual expected dividend on the S&P index was about 154.6. If the dividend is expected to grow at a steady rate of 8% a year and the required annual rate of return is 10%, what is the value of the index?
A) 1193
B) 1700
C) 7730
D) None of the above

Question

Quizplus · Accepted Answer

Using the Gordon Growth Model:
V = D/(r-g)
where V is the value of the index, D is the annual dividend, r is the required annual rate of return, and g is the expected annual growth rate of the dividend.
Thus, V = 154.6/(0.10-0.08) = 7730.

The Annual Expected Dividend on the S&P Index Was About