Question #66
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 26
Status: Unattempted
Question
If a stock expects to pay dividends of $2.30 per share next year, what is the value of the stock if the required rate of return is 12% and the expected growth rate in dividends is 4%?
Answer Choices:
A. $19.17
B. $28.75
C. $29.90
Explanation
Using the Gordon growth model, the value per share = DPS1 / (r − g) = 2.30 / (0.12 − 0.04) =
$28.75.