The value of a share of stock can be calculated using the Gordon Growth Model, which is a version of the dividend discount model that assumes dividends grow at a constant rate. The formula is:

Stock Value = D1 / (r - g)

where:
D1 is the dividend expected next year,
r is the required rate of return, and
g is the growth rate of dividends.

Here's how to calculate it:

1. First, calculate D1, the dividend expected next year. This is the last dividend received grown by the growth rate. In this case, it's $5 * (1 + 0.06) = $5.30.

2. Next, subtract the growth rate from the required rate of return. In this case, it's 0.20 - 0.06 = 0.14.

3. Finally, divide D1 by this difference to get the stock value. In this case, it's $5.30 / 0.14 = $37.86.

So, the current price of the share of stock should be $37.86.

Question

The value of a share of stock can be calculated using the Gordon Growth Model, which is a version of the dividend discount model that assumes dividends grow at a constant rate. The formula is:

Stock Value = D1 / (r - g)

where:
D1 is the dividend expected next year,
r is the required rate of return, and
g is the growth rate of dividends.

Here's how to calculate it:

1. First, calculate D1, the dividend expected next year. This is the last dividend received grown by the growth rate. In this case, it's $5 * (1 + 0.06) = $5.30.

2. Next, subtract the growth rate from the required rate of return. In this case, it's 0.20 - 0.06 = 0.14.

3. Finally, divide D1 by this difference to get the stock value. In this case, it's $5.30 / 0.14 = $37.86.

So, the current price of the share of stock should be $37.86.

Knowee AI · Accepted Answer

The value of a share of stock can be calculated using the Gordon Growth Model, which is a version of the dividend discount model that assumes dividends grow at a constant rate. The formula is:

Stock Value = D1 / (r - g)

where:
D1 is the dividend expected next year,
r is the required rate of return, and
g is the growth rate of dividends.

Here's how to calculate it:

1. First, calculate D1, the dividend expected next year. This is the last dividend received grown by the growth rate. In this case, it's $5 * (1 + 0.06) = $5.30.

2. Next, subtract the growth rate from the required rate of return. In this case, it's 0.20 - 0.06 = 0.14.

3. Finally, divide D1 by this difference to get the stock value. In this case, it's $5.30 / 0.14 = $37.86.

So, the current price of the share of stock should be $37.86.

What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%?

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