Suppose firm X pays dividend D to investors today and the dividend is expected to grow permanently with constant rate g. Letting discount factor be k and assuming k>g. 

(i) Let X's stock price be P. Express P as a function of D, k and g using the Gordon model. Show each steps of your derivation explicitly. Do NOT just write the final expression.

(ii) Suppose discount factor k consists of risk-free rate i and risk premium r, that is, 1+k=1+i+r. Then, discuss what factors influence stock price P by using the expression derived 

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i In the Gordon model the stock price P is given by the formula P D k g where P Stock price D Dividend paid by the firm k Discount rate required rate ... View the full answer