If next year's dividend is forecast to be $5.00,the constant-growth rate is 4%,and the discount rate is 16%,then the current stock price should be:
A) $31.25
B) $40.00
C) $41.67
D) $43.33

Question

Quizplus · Accepted Answer

We can use the Gordon Growth Model to find the current stock price.

Current Stock Price = Dividend / (Discount Rate - Growth Rate)

Current Stock Price = $5.00 / (0.16 - 0.04)

Current Stock Price = $5.00 / 0.12

Current Stock Price = $41.67 (rounded to two decimal places)

Therefore, the correct answer is C) $41.67.

If Next Year's Dividend Is Forecast to Be $5