What price would you expect to pay for a stock with 13% required rate of return,4% rate of dividend growth,and an annual dividend of $2.50 which will be paid tomorrow?
A) $27.78
B) $30.28
C) $31.10
D) $31.39

Question

Quizplus · Accepted Answer

The correct answer is D because the price of the stock can be calculated using the Gordon Growth Model:Price = Dividend / (Required Rate of Return - Dividend Growth Rate)= 2.50 / (0.13 - 0.04)= 2.50 / 0.09= $31.39

What Price Would You Expect to Pay for a Stock