Investors require an 8% rate of return on Mather Companys stock (i.e., r s = 8%). a.

Investors require an 8% rate of return on Mather Company’s stock (i.e., r_s = 8%).

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a. What is its value if the previous dividend was D = $1.25 and investors expect divi- dends to grow at a constant annual rate of (1) -2%, (2) 0%, (3) 3%, or (4) 5%? b. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 8% and the expected growth rate was (1) 8% or (2) 12%? Are these reasonable results? Explain. c. Is it reasonable to think that a constant growth stock could have g> r? Why or why not?