The Commuter Solutions Company just paid an annual dividend of $1.12.If you expect a constant growth rate of 4% and have a required rate of return of 13%,what is the current stock price according to the constant growth dividend model?

Question

Quizplus · Accepted Answer

Using the constant growth dividend model: P = D/(r-g), where P is the current stock price, D is the dividend, r is the required rate of return, and g is the growth rate.

Plugging in the given values, we get:

P = $1.12/(0.13 - 0.04) = $1.12/0.09 = $12.44

So the closest answer choice is B) $12.94, which is the correct answer after rounding to the nearest cent.

The Commuter Solutions Company Just Paid an Annual Dividend of $1.12.If