question archive ABC corporation has announced that it will pay a 3$ dividend 1 year from now
ABC corporation has announced that it will pay a 3$ dividend 1 year from now
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ABC corporation has announced that it will pay a 3$ dividend 1 year from now. Investors expect that the growth rate of the dividends will be constant 5% from then on. If the required rate of return on the stock is 15%, what is the price of the stock today?
Select one:
a. 20
b. 31.5
c. 35
d. 30
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According to the gordon growth model,
Current value = next dividend/ Ke - g
= $3/0.15-0.05
=$30
Answer $ 30 (option d)
