Question: The Gordon growth model is a useful tool for calculating the price of a stock. Apply the model to answer the following two problems: a.

The Gordon growth model is a useful tool for calculating the price of a stock. Apply the model to answer the following two problems: a. If General Electric (GE) is currently paying an annual dividend of $0.40 per share, its dividend is expected to grow at a rate of 7% per year, and the return investors require to buy GEs stock is 10%, calculate the price per share for GEs stock. b. In March 2010, the price of IBMs stock was $127 per share. At the time, IBM was paying an annual dividend of $2.20 per share. If the return investors required to buy IBMs stock was 0.10, what growth rate in IBMs dividend must investors have been expecting?

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