XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has been at 2% and expected to be so into the future. If investor's return is 10%, calculate the stock price now.

Question

Quizplus · Accepted Answer

The stock price can be calculated using the Gordon Growth Model: P = D / (r - g). Here, D = $3, r = 10% or 0.10, and g = 2% or 0.02. So, P = 3 / (0.10 - 0.02) = 3 / 0.08 = $37.50.

XYZ Corporation's Next Dividend Is Expected to Be $3 Per