A bank expects to pay a dividend of $3.45 next year and growth rate on dividends to be 7%.If the appropriate discount rate is 15%,what should the bank's stock price be in the market?
A)$23.00
B)$43.13
C)$46.14
D)$49.29
E)$24.61

Question

Quizplus · Accepted Answer

The stock price can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity with growth), which is P = D / (r - g), where P is the price, D is the expected dividend, r is the discount rate, and g is the growth rate. Plugging in the values: P = $3.45 / (0.15 - 0.07) = $3.45 / 0.08 = $43.125, which rounds to $43.13.

A Bank Expects to Pay a Dividend of $3