What should be the current price of a stock if the expected dividend is $5, the stock has a required return of 20 percent, and a constant dividend growth rate of 6 percent?
A)$19.23
B)$25.00
C)$35.71
D)$37.86

Question

Quizplus · Accepted Answer

Using the constant dividend growth model, we can calculate the current price of the stock as follows:

Current Stock Price = Expected Dividend / (Required Return - Dividend Growth Rate)
Current Stock Price = $5 / (20% - 6%)
Current Stock Price = $35.71

Therefore, the current price of the stock should be $35.71. Option C is the closest answer.

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