Question

A stock is expected to pay a dividend of $2.68 at the end of the year. The required rate of return is rs = 7.6%, and the expected constant growth rate is g = 2.0%. What is the stock's current price?

Answer 1

To calculate the stock's current price, use the Gordon Growth Model: Current Price = Dividend / (Required Rate of Return - Expected Growth Rate). Plugging in the given values, the current price is $47.86.

Step-by-step explanation:

To calculate the stock's current price, we can use the Gordon Growth Model:

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

Plugging in the given values:

Current Price = $2.68 / (0.076 - 0.02)

Current Price = $2.68 / 0.056

Current Price = $47.86