Ask Question
6 January, 17:08

According to the Gordon growth model, what is an investor's valuation of a stock whose last dividend was $1.00 per year if dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor's required return is 16 percent?

+4
Answers (1)
  1. 6 January, 17:51
    0
    The investor valuation of a stock is $18.33

    Explanation:

    Gordon Growth model : The formula to compute investor valuation of stock is shown below:

    = Dividend of year 1 : (Required rate - growth rate)

    where,

    year 1 dividend = year 0 dividend * (1 + growth rate)

    = $1 * (1 + 0.10)

    =$1.10

    Required rate of return = 16%

    And, growth rate = 10%

    Now apply the above formula which is equals to

    = $1.10 : (16% - 10%)

    = $18.33

    Hence, The investor valuation of a stock is $18.33
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “According to the Gordon growth model, what is an investor's valuation of a stock whose last dividend was $1.00 per year if dividends are ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers