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vovikov84 [41]
3 years ago
13

The last dividend (D0) is $1.80, the growth rate (g) is 6%, and the required rate of return (r) is 12%. What is the stock price

according to the constant growth dividend model
Business
1 answer:
jekas [21]3 years ago
7 0

Answer:

Price = $31.8  

Explanation:

The formula for constant growth dividend model is:

  Price =  <u>D1</u>

               r-g

Or

  Price = <u>D0 (1+g)</u>

                   r-g

where,

D0 = Last Dividend Paid

r = required rate of return

g = growth rate

Substitute the values now in the formula according:

   Price =   <u>1.80 (1+0.06)</u>

                     0.12-0.06

   Price =  <u>1.908</u>

                  0.06

   Price = $31.8

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