Question

Using the Gordon growth formula, if D1 is $1.00, ke is 10% or 0.10, and g is 5% or 0.05, then the current stock price is?

Answer 1

The current stock price using the Gordon growth formula is $20.00.

Step-by-step explanation:

To calculate the current stock price using the Gordon growth formula, we can use the formula:

Current stock price = D1 / (ke - g)

Given that D1 is $1.00, ke is 10% or 0.10, and g is 5% or 0.05, we can substitute these values into the formula:

Current stock price = $1.00 / (0.10 - 0.05) = $1.00 / 0.05 = $20.00

Therefore, the current stock price is $20.00.