An issue of common stock is expected to pay a dividend of $5.15 at the end of the year. Its growth rate is equal to 6%. If the required rate of return is 10%, what is its current price?
A) $128.75
B) $36.92
C) $96.00
D) None of these

Question

Quizplus · Accepted Answer

The correct answer is A because the current price of the stock is $128.75. This is calculated using the formula: Current Price = Dividend / (Required Rate of Return - Growth Rate). In this case, the dividend is $5.15, the required rate of return is 10%, and the growth rate is 6%. Plugging these values into the formula, we get: Current Price = $5.15 / (0.10 - 0.06) = $128.75.

An Issue of Common Stock Is Expected to Pay a Dividend