Which of the following amounts is closest to what should be paid for Overland ordinary equity? Overland has just paid a dividend of €2.25.These dividends are expected to grow at a rate of 5% in the foreseeable future.The required rate of return is 11%.
A)€20.45
B)€21.48
C)€37.50
D)€39.38
E)€47.70

Question

Quizplus · Accepted Answer

The price of the stock can be calculated using the Gordon Growth Model: P = D1 / (r - g), where D1 is the next year's dividend (€2.25 * 1.05 = €2.3625), r is the required rate of return (11% or 0.11), and g is the growth rate (5% or 0.05). Plugging in the values: P = €2.3625 / (0.11 - 0.05) = €39.375, which is closest to €39.38.

Which of the Following Amounts Is Closest to What Should