Question

A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 10.2%, then what is the stock price? Group of answer choices $23.93 $21.96 $24.37 $23.50 $16.47

Answer 1

The stock price is $23.93.

Step-by-step explanation:

To calculate the stock price, we can use the Gordon Growth Model formula:

Stock Price = Dividend / (Required Rate of Return - Growth Rate)

Plugging in the given values:

Dividend = $1.00

Required Rate of Return = 10.2%

Growth Rate = 5.4%

Stock Price = 1 / (0.102 - 0.054)

Stock Price = $23.93