Homework #5B (Value of Common Stock, Expected Rate of return on
Common Stock) - Quiz
Question 1
The last dividend of Delta, Inc. was $4.81, the growth rate of dividends is expected to be
4.60 percent, and the required rate of return on this stock is 10.66 percent. What is the
stock price according to the constant growth dividend model?
The formula is
D0 *(1+g)/(rg), where
D0 is the last year dividend
g is the constant growth rate
r is the required rate of return
$4.81 *(1+0.0460)/(0.1066 – 0.0460) = 83.02
Question 2
The next year the common stock of Gold Corp. will pay a dividend of $4.73 per share. If
the company is growing at a rate of 5.33 percent per year, and your required rate of return
is 8.04 percent, what is Gold's company stock worth to you?
Round the answer to two decimal places.
The formula is
D0 *(1+g)/(rg)= D1/(rg), where
D0 is the last year dividend
D1 is the next year dividend
g is the constant growth rate
r is the required rate of return
In this problem “the next year” dividends is given, which is D 1, so
$4.73/(0.0804 – 0.0533) = $174.54
This study source was downloaded by 100000872281541 from CourseHero.com on 10-01-2023 17:47:15 GMT -05:00
https://www.coursehero.com/file/20945252/Homework-5B-Value-of-Common-Stock-Expected-Rate-of-return-on-Common-Stock-Quiz/
Common Stock) - Quiz
Question 1
The last dividend of Delta, Inc. was $4.81, the growth rate of dividends is expected to be
4.60 percent, and the required rate of return on this stock is 10.66 percent. What is the
stock price according to the constant growth dividend model?
The formula is
D0 *(1+g)/(rg), where
D0 is the last year dividend
g is the constant growth rate
r is the required rate of return
$4.81 *(1+0.0460)/(0.1066 – 0.0460) = 83.02
Question 2
The next year the common stock of Gold Corp. will pay a dividend of $4.73 per share. If
the company is growing at a rate of 5.33 percent per year, and your required rate of return
is 8.04 percent, what is Gold's company stock worth to you?
Round the answer to two decimal places.
The formula is
D0 *(1+g)/(rg)= D1/(rg), where
D0 is the last year dividend
D1 is the next year dividend
g is the constant growth rate
r is the required rate of return
In this problem “the next year” dividends is given, which is D 1, so
$4.73/(0.0804 – 0.0533) = $174.54
This study source was downloaded by 100000872281541 from CourseHero.com on 10-01-2023 17:47:15 GMT -05:00
https://www.coursehero.com/file/20945252/Homework-5B-Value-of-Common-Stock-Expected-Rate-of-return-on-Common-Stock-Quiz/
