A firm's stock is selling at $95.00 per share. Its growth rate is 10% and investors demand 15% on this stock. What is the firm's expected dividend?

Question

Quizplus · Accepted Answer

The expected dividend can be calculated using the Gordon Growth Model (Dividend Discount Model): P = D / (r - g), where P is the price per share, D is the expected dividend, r is the required rate of return, and g is the growth rate. Rearranging the formula to solve for D gives D = P * (r - g). Substituting the given values: D = $95 * (0.15 - 0.10) = $4.75.

A Firm's Stock Is Selling at $95