Nonconstant growth: Stag Corp. will pay dividends of $4.75, $5.25, $5.75, and $7 for the next four years. Thereafter, the company expects its growth rate to be at a constant rate of 7 percent. If the required rate of return is 15 percent, what is the current market price of the stock?

Question

Quizplus · Accepted Answer

The correct answer is A because the current market price of the stock is $69.41. This is calculated by using the Gordon Growth Model, which is:P = D / (r - g)where:P = current market price of the stockD = dividend in the next yearr = required rate of returng = growth rateIn this case, the dividend in the next year is $4.75, the required rate of return is 15%, and the growth rate is 7%. Plugging these values into the formula, we get:P = $4.75 / (0.15 - 0.07) = $69.41

Nonconstant Growth: Stag Corp