Consider the following dividend and price data for Chrysler: 1 2 3 4 5 6 7 8 9 10 11 12 13 A BCD E Year Year-end stock price Dividend per share Growth rate 6891 04.0 7891 1-3C/4C= --<%00.5205.0 8891 1-4C/5C= --<%00.005.0 9891 1-5C/6C= --<%00.0206.0 0991 1-6C/7C= --<%00.006.0 1991 1-7C/8C= --<%00.05-03.0 2991 %00.003.0 3991 %00.0133.0 4991 %63.6354.0 5991 %22.22100.1 1996 35.00 1.40 40.00% CHRYSLER CORPORATION (C) Use the Gordon model to calculate Chrysler s cost of equity at end-1996 on the basis of dividends only.

Compute Chrysler's cost of equity using the Gordon model. (Use a geometric rather than arithmetic average growth rate.)