Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $15 in dividends,in addition the dividends are expected to grow at a rate of 8 percent forever,and the investor's required rate of return is 10 percent.

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Quizplus · Accepted Answer

The value of a share of stock can be calculated using the Gordon Growth Model (also known as the Dividend Discount Model for a perpetually 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 of the dividend. Plugging in the values given: P = $15 / (0.10 - 0.08) = $15 / 0.02 = $750.

Using the Stock Valuation Formula Calculate the Value of a Share