Schnusenberg Corporation just paid a dividend of $0.65 per share,and that dividend is expected to grow at a constant rate of 7.00% per year in the future.The company's beta is 0.95,the required return on the market is 10.50%,and the risk-free rate is 5.00%.What is the company's current stock price?

Question

Quizplus · Accepted Answer

The correct answer is A because the current stock price is $21.57. This can be calculated using the Gordon Growth Model, which is:P0 = D1 / (r - g)where:P0 is the current stock priceD1 is the next dividend paymentr is the required rate of returng is the constant growth rate of dividendsIn this case, D1 = $0.65 * (1 + 0.07) = $0.6955, r = 0.1050, and g = 0.07. Plugging these values into the formula, we get:P0 = $0.6955 / (0.1050 - 0.07) = $21.57

Schnusenberg Corporation Just Paid a Dividend of $0