According to the Gordon-Growth model, what is the value of a stock with a dividend of $2, required return on equity of 8% and expected growth rate of dividends of 4%?

Question

Quizplus · Accepted Answer

Using the Gordon-Growth model, the formula for the value of a stock is V = D/(r-g), where D is the annual dividend, r is the required return on equity, and g is the expected growth rate of dividends.

Plugging in the given values, we get: 
V = 2/(0.08 - 0.04) = 2/0.04 = 50

Therefore, the value of the stock is $50. The closest answer choice is D) $52.

According to the Gordon-Growth Model, What Is the Value of a Stock