Gordon Growth Company is expected to pay a

Rieng Mzing

Rieng Mzing

Answered question

2022-06-08

  • 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?

Answer & Explanation

RizerMix

RizerMix

Expert2023-05-20Added 656 answers

To find the current price of the Gordon Growth Company's stock, we can use the Gordon Growth Model. The formula for the Gordon Growth Model is:
P0=D1rg
where:
- P0 is the current price of the stock
- D1 is the dividend expected to be paid in the next period
- r is the required return
- g is the expected growth rate of dividends
In this case, we are given:
- D1=3.4 (the dividend expected to be paid in the next period)
- r=0.11 (the required return)
- g=0.03 (the expected growth rate of dividends)
Now, let's substitute these values into the formula:
P0=3.40.110.03
Simplifying the denominator:
P0=3.40.08
Dividing 3.4 by 0.08:
P0=42.5
Therefore, the current price of the stock, according to the Gordon Growth Model, is 42.5.

Do you have a similar question?

Recalculate according to your conditions!

Ask your question.
Get an expert answer.

Let our experts help you. Answer in as fast as 15 minutes.

Didn't find what you were looking for?