A stock just paid an annual dividend of $2.00, which is expected to remain constant indefinitely. The market return is 14%. The estimated selling price of the stock is:

A) $1.76.
B) $14.29.
C) $10.43.
D) None of the above

Question

Julie Warburton · Accepted Answer

Final Answer : B, Explanation :  The estimated selling price (P) can be calculated using the Gordon growth model:P = D/(r-g)where D is the annual dividend ($2.00), r is the market return (14%), and g is the expected growth rate of the dividend (which is assumed to be zero, since it is expected to remain constant indefinitely).P = $2.00/(0.14-0) = $14.29Therefore, the estimated selling price of the stock is $14.29, which is answer choice B.

A stock just paid an annual dividend of $2.00, which is expected to remain constant indefinitely. The market return is 14%. The estimated selling price of the stock is:

A) $1.76.
B) $14.29.
C) $10.43.
D) None of the above

Definitions

Learning Objectives

Learning Objectives

Related questions

A stock just paid an annual dividend of $2.00, which is expected to remain constant indefinitely. The market return is 14%. The estimated selling price of the stock is:A) $1.76.B) $14.29.C) $10.43.D) None of the above

Definitions

Learning Objectives

Learning Objectives

Related questions

A stock just paid an annual dividend of $2.00, which is expected to remain constant indefinitely. The market return is 14%. The estimated selling price of the stock is:

A) $1.76.
B) $14.29.
C) $10.43.
D) None of the above