Explore BrainMass

Explore BrainMass

    The Constant Dividend Growth Model

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Harrison Cothiers' stock currently sells for $20 a share. It just paid a dividend of $1.00 a share (that is , D 0 = $1.00). The dividend is expected to grow at a constant rate of 6 percent a year. What stock price is expected 1 year from now? What is the required rate of return?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:45 pm ad1c9bdddf
    https://brainmass.com/business/accounting/the-constant-dividend-growth-model-296355

    Solution Preview

    The stock price a year from now is merely the current stock price times 1 plus the expected dividend growth rate. Thus, the stock price a year from now is $20.00*1.06, or ...

    Solution Summary

    Harrison Clothiers' stock currently sells for $20 a share. It just paid a dividend of $1.00 a share (that is , D 0 = $1.00). The dividend is expected to grow at a constant rate of 6 percent a year. What stock price is expected 1 year from now? What is the required rate of return?

    $2.19

    ADVERTISEMENT