• Gordon Growth Company is expected to pay a dividend of $3.4 next period and dividends are expected to grow at 3% per year. The required return is 11%.
• What is the current price?

 

• What is the value of a stock that is expected to pay a constant dividend of $4.50 per year if the required return is 12%?
  • Hint: zero growth like preferred stock.
• What if the company starts increasing dividends by 3% per year, beginning with the next dividend? The required return stays at 12%.

Hint: use DGM

 

• ABC Inc. will pay a dividend of $2.45 next year. Assume that the company will maintain a constant growth rate of 5% a year forever. If you want a 9% rate of return, how much will you pay for the stock?