The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%.What is Jameson's current stock price, P₀? A) $18.62 B) $19.08 C) $19.56 D) $20.05 E) $20.55

Question

Quizplus · Accepted Answer

The correct answer is A because the current stock price, P0, can be calculated using the Gordon Growth Model: P0 = D1 / (r - g), where D1 is the next dividend, r is the required rate of return, and g is the constant growth rate. Plugging in the given values, we get P0 = $0.75 / (0.095 - 0.055) = $18.62.

The Jameson Company Just Paid a Dividend of $0