What is the estimated value of a stock with a required rate of return of 10 percent, a projected constant growth rate of dividends of 5 percent and expected dividend of $2.00?
A) $4
B) $40
C) $44
D) $20

Question

Quizplus · Accepted Answer

The estimated value of the stock can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity with growth) as follows: P = D / (r - g), where P is the price, D is the expected dividend, r is the required rate of return, and g is the growth rate. Plugging in the values: P = $2.00 / (0.10 - 0.05) = $40.

What Is the Estimated Value of a Stock with a Required