(a) Home Depot, Inc. recently announced an annual dividend amount of $1.65 per share (February 23, 2021). Assume that the required return on investment for this equity is 10.75%, and the constant growth rate of the dividend payment is 10%. Please calculate and report the current price of the stock using the Gordon growth model. (As an aside, the actual stock price on February 23rd was approximately $265).

(b) Now assume that the required return on investment increases from 10.75% to 11.00% due to an increase on the yield of bonds. Assume the constant growth of dividends remains at 10%. Calculate and report the price of Home Depot stock with this new required return using the Gordon growth model.

(c) Using the answers to your previous question, does it seem like interest rates can have an impact on the price of stocks?

Answer rating: 100% (QA)

a To calculate the current price of the stock using the Gordon growth model we can use the following ... View the full answer