stock is expected to pay a dividend of $0.75 at the end of the year The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4% What is the stock's current price?
A) $17.39
B) $17.84
C) $18.29
D) $18.75
E) $19.22

Question

Quizplus · Accepted Answer

The stock's current price can be calculated using the Gordon Growth Model (Dividend Discount Model): P = D1 / (rs - g). Here, D1 = $0.75, rs = 10.5% or 0.105, and g = 6.4% or 0.064. Plugging in these values, P = 0.75 / (0.105 - 0.064) = 0.75 / 0.041 = $18.29.

Stock Is Expected to Pay a Dividend of $0