Question

Spotify just paid a cash dividend of $1 per share. Investors require a 16% return from investments such as this. If the dividend is expected to grow at a steady 6 percent per year, what is the current value of the stock

Answer 1

$10.60

Step-by-step explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

1(1.06) / 0.16 - 0.06

1.06/0.10 = 10.60