An issue of common stock's most recent dividend is $1.75. Its growth rate is 5.7%. What is its price if the market's rate of return is 7.7%?
A) $24.63
B) $87.50
C) $92.50
D) None of these

Question

Quizplus · Accepted Answer

To find the price of the stock, we can use the Gordon growth model formula:

Price = Dividend / (Market Rate of Return - Growth Rate)

Substituting the given values, we get:

Price = $1.75 / (0.077 - 0.057) = $92.50

Therefore, choice C is the correct answer.

An Issue of Common Stock's Most Recent Dividend Is $1