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Using the constant growth model what is the price? What is the impact on stock price if g is 4% or 6%? If Rs is 9 or 11%?

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Suppose the expected Dl is $2, the growth rate is 5 percent and Rs is 10%. Using the constant growth model what is the price? What is the impact on stock price if g is 4% or 6%? If Rs is 9 or 11%

If a stock pays an annual dividend of $5 and the issue price was $50 per share. What is the expected rate of return to an investor on this preferred stock?

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Solution Summary

The expert uses the constant growth model to determine what is the price.

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By DDM,
Po = D1 / (Rr - g) = 2/ (10%-5%) = $40

When g = ...

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