Question

k ⱼ= r ᴶ+β ⱼ( r ᵐ− r ᴶ) Given the current stock price, the current dividend rate, and analysts' projections for future dividend growth, you expect to earn a rate of return of 18 percent. . Would you recommend buying or selling this stock? Why? Because the expected return is , Bulldog's stock purchased. If your expected rate of return from the stock of Bulldog is 15 percent, what would you expect to happen to Bulldog's stock price? Bulldog's stock price is expected to

Answer 1

The formula used to value the price of a stock is the Gordon Growth Model. If the expected rate of return is higher than the expected return, it is recommended to buy the stock. If the expected rate of return is 15 percent, it is likely that the stock price will increase.

Step-by-step explanation:

The given formula is the Gordon Growth Model, which is used to value the price of a stock. The formula calculates the present value of future dividends expected to be received by an investor. The formula takes into account the current stock price (rᴶ), the current dividend rate (βⱼ), the expected rate of return (kⱼ), and the projected growth rate of dividends (rᵐ - rᴶ).

In this case, the student is asking whether to buy or sell the stock. Based on the given information, the expected rate of return is 18 percent, and if the expected rate of return from the stock is 15 percent, it would be recommended to buy the stock. This is because the expected return is higher than the expected rate of return, indicating potential profitability.

If the expected rate of return from the stock is 15 percent, it is likely that the stock price will increase. This is because the expected rate of return is higher than the expected return, which suggests that investors are willing to pay more for the stock. As demand for the stock increases, the price is likely to go up.