What is the value of a stock which has a current dividend (D₀) of $1.50, and is growing at the rate of 7%? The investor's required rate of return is 12%.

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Quizplus · Accepted Answer

The value of a stock with a growing dividend can be calculated using the Gordon Growth Model (Dividend Discount Model for a growing dividend), which is given by the formula: P = D / (r - g), where P is the price of the stock, D is the dividend, r is the required rate of return, and g is the growth rate. Plugging in the values given: P = $1.50 / (0.12 - 0.07) = $1.50 / 0.05 = $30.00.

What Is the Value of a Stock Which Has a Current