Using the Gordon growth formula, if D₁ is $2.00, kₑ is 12 percent or 0.12, and g is 10 percent or 0.10, then the current stock price is ________.
A)$20
B)$50
C)$100
D)$150

Question

Quizplus · Accepted Answer

The Gordon growth model is as follows:

P = D₁ / (kₑ - g)

Plugging the given values into the formula, we get:

P = 2 / (0.12 - 0.10) = $100

Therefore, the current stock price is $100, which corresponds to choice (C).

Using the Gordon Growth Formula, If D₁ Is $2