National Advertising just paid a dividend of D₀ = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future.The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%.What is the company's current stock price?

Question

Quizplus · Accepted Answer

The correct answer is A because the current stock price is $14.52. This can be calculated using the Gordon Growth Model, which is:P0 = D0 / (r - g)where:P0 is the current stock priceD0 is the most recent dividend paidr is the required returng is the constant growth rate of dividendsIn this case, we have:D0 = $0.75r = 10.50%g = 6.50%Plugging these values into the formula, we get:P0 = $0.75 / (0.1050 - 0.0650)P0 = $14.52

National Advertising Just Paid a Dividend of D0 = $0

National Advertising Just Paid a Dividend of D₀ = $0