The earnings for a company are $10 and they are expected to grow at 5% annually. According to the Gordon Growth Model, if the required rate of return is 9%, then the price of the company's stock should be

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The Gordon Growth Model formula is P = D / (r - g), where P is the price, D is the dividend, r is the required rate of return, and g is the growth rate. Assuming the entire earnings are paid as dividends, D = $10, r = 0.09, and g = 0.05. Thus, P = 10 / (0.09 - 0.05) = $250.

The Earnings for a Company Are $10 and They Are