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stranahan stranahan
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Posts: 3324
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2 years ago
The Belgium Bike Company just paid an annual dividend of $1.12. If you expect a constant growth rate of 4% and have a required rate of return of 13%, what is the current stock price according to the constant growth dividend model?
A) $13.46
B) $12.44
C) $12.94
D) There is not enough information to answer this question.
Textbook 

Financial Management: Core Concepts


Edition: 2nd
Author:
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torchunicycletorchunicycle
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Posts: 348
2 years ago
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C -- The Dividend Growth Model states that P0 = (Div0 ∗ (1 + g)/r - g).
Inserting our values gives: P0 = (Div0 ∗ (1 + g)/r - g) = ($1.12 ∗ (1.04)/0.13 - 0.04) = ($1.165/0.09) = $12.94
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2 years ago
Thank you for  the help. I had a few questions on a few of them and this really confirmed my answers.
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thank you so much
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