If a company pays a dividend of $5 to be received one year from now,dividends are expected to grow at a rate of 8 percent per year for the indefinite future,and the interest rate is 14 percent,the price of the company's stock should be ________ per share.

Question

Quizplus · Accepted Answer

The price of the company's stock can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetually growing dividend), which is P = D / (r - g), where P is the price, D is the dividend, r is the required rate of return (interest rate), and g is the growth rate. Plugging in the values: P = $5 / (0.14 - 0.08) = $5 / 0.06 = $83.33.

If a Company Pays a Dividend of $5 to Be