The last dividend (D0) is $1.80, the growth rate (g) is 6%, and the required rate of return (r) is 12%. What is the stock price according to the constant growth dividend model

Price = $31.8

Explanation:

The formula for constant growth dividend model is:

Price = D1

r-g

Or

Price = D0 (1+g)

r-g

where,

D0 = Last Dividend Paid

r = required rate of return

g = growth rate

Substitute the values now in the formula according:

Price = 1.80 (1+0.06)

0.12-0.06

Price = 1.908

0.06

Price = $31.8