An issue of common stock is expected to pay a dividend of $4.00 at the end of the year.Its growth rate is equal to 8%.If the required rate of return is 15%,what is its current price?
A) $103.68
B) $50.00
C) $26.67
D) $57.14

Question

Quizplus · Accepted Answer

Using the dividend discount model, we can calculate the current price of the stock as follows:

Current Price = Dividend/(Required Rate of Return - Growth Rate)
Current Price = $4.00/(0.15 - 0.08)
Current Price = $4.00/0.07
Current Price = $57.14

Therefore, the current price of the stock is $57.14, which is option D.

An Issue of Common Stock Is Expected to Pay a Dividend