Gilmore, Inc., just paid a dividend of $3.15 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Assume investors require a return of 11 percent on this stock. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

Question

Braxton Howard

Business

8 June, 22:00

Gilmore, Inc., just paid a dividend of $3.15 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Assume investors require a return of 11 percent on this stock. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Luz Martinez · Answer 1

Price = $66.78

Explanation:

The dividend growth model will be used to calculate the price of stock. The future value of dividend, required rate of return and growth rate will be used to calculate the price of stock.

Price = Expected Dividend

Required Rate of Return - Growth Rate

Price = Dividend Paid (1 + Growth Rate)

Required Rate of Return - Growth Rate

Price = Do (1 + g)

r - g

Price = 3.15 * (1 + 0.06)

0.11 - 0.06

Price = $66.78