# Question: The dividend growth model may be used to value a stock V

The dividend-growth model may be used to value a stock:

V= D0 (1 + g) / k - g

a. What is the value of a stock if:

D0 = $2

k = 10%

g = 6%

b. What is the value of this stock if the dividend is increased to $3 and the other variables remain constant?

c. What is the value of this stock if the required return declines to

7.5 percent and the other variables remain constant?

d. What is the value of this stock if the growth rate declines to 4 percent and the other variables remain constant?

e. What is the value of this stock if the dividend is increased to $2.30, the growth rate declines to 4 percent, and the required return remains 10 percent?

V= D0 (1 + g) / k - g

a. What is the value of a stock if:

D0 = $2

k = 10%

g = 6%

b. What is the value of this stock if the dividend is increased to $3 and the other variables remain constant?

c. What is the value of this stock if the required return declines to

7.5 percent and the other variables remain constant?

d. What is the value of this stock if the growth rate declines to 4 percent and the other variables remain constant?

e. What is the value of this stock if the dividend is increased to $2.30, the growth rate declines to 4 percent, and the required return remains 10 percent?

## Answer to relevant Questions

Last year Artworks, Inc. paid a dividend of $3.50. You anticipate that the company’s growth rate is 10 percent and have a required rate of return of 15 percent for this type of equity investment. What is the maximum price ...The security market line is estimated to be k = 5% 1 110.4% - 5%2b. You are considering two stocks. The beta of A is 1.4. The firm offers a dividend yield during the year of 4 percent and a growth rate of 7 percent. The beta ...Charlotte's Clothing issued a 5 percent bond with a maturity date of 15 years. Five Years have passed and the bond is selling for $690. a. What is the current yield? b. What is the yield to maturity? c. If five years later ...Repeat the previous problem but assume that comparable yields are 10 percent. Previous problem What should be the prices of the following preferred stocks if comparable securities yield 7 percent? Why are the valuations ...You invest $1,000 in a stock and $1,000 in a corporate bond. If you earn 10 percent on the stock and 6 percent on the bond and hold each security for 20 years, what are the terminal values for each investment? If you ...Post your question