Under the efficient markets hypothesis, what would be the price per share of a company whose current dividend is $10.00 and whose dividends are expected to grow by 3% per year (assume the risk-adjusted interest rate is 10%)?

Question

Quizplus · Accepted Answer

The price per share can be calculated using the Gordon Growth Model (Dividend Discount Model): P = D1 / (r - g), where D1 is the expected dividend next year ($10 * 1.03 = $10.30), r is the required rate of return (10%), and g is the growth rate (3%). So, P = $10.30 / (0.10 - 0.03) = $147.14.

Under the Efficient Markets Hypothesis, What Would Be the Price