A firm's stock is selling at $95.00 per share. Its growth rate is 10 percent and investors demand 15 percent on this stock. What is the firm's expected dividend?

Question

Quizplus · Accepted Answer

The expected dividend can be calculated using the Gordon Growth Model (Dividend Discount Model): Price = Dividend / (Required Rate of Return - Growth Rate). Rearranging gives Dividend = Price * (Required Rate of Return - Growth Rate). So, Dividend = $95 * (0.15 - 0.10) = $4.75.

A Firm's Stock Is Selling at $95