The ABC Co. has paid annual dividends of $0.30, $0.64, $1.20, and $1.45 over the past four years. Dividends in the future are expected to grow at a constant rate of 3.5%. Which one of the following formulas should be used to compute the value of the stock today?

Question

Quizplus · Accepted Answer

The correct formula for valuing a stock with dividends that are expected to grow at a constant rate (g) is the Gordon Growth Model, which is represented as $ \frac{D_1}{r - g} $, where $D_1$ is the dividend expected next year, $r$ is the required rate of return, and $g$ is the growth rate of the dividends. This matches choice D.