You wish to earn a return of 13% on each of two stocks, X and Y.Stock X is expected to pay a dividend of $3 in the upcoming year while stock Y is expected to pay a dividend of $4 in the upcoming year.The expected growth rate of dividends for both stocks is 7%.The intrinsic value of stock X

Question

Quizplus · Accepted Answer

The intrinsic value of a stock is calculated using the Gordon Growth Model: P = D / (r - g). For stock X, P = 3 / (0.13 - 0.07) = $50. For stock Y, P = 4 / (0.13 - 0.07) = $66.67. Therefore, the intrinsic value of stock X is less than that of stock Y.

You Wish to Earn a Return of 13% on Each