Mortgage Instruments Inc.is expected to pay dividends of $1.04 next year.The company just paid dividends of $1.This growth rate is expected to continue.How much should be paid for Mortgage Instruments stock just after the dividend if the appropriate discount rate is 6%?

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Quizplus · Accepted Answer

The dividend growth model (Gordon Growth Model) is used: P = D1 / (r - g). Here, D1 = $1.04, r = 0.06, and g = 0.04. So, P = 1.04 / (0.06 - 0.04) = $52.00.