Unit 2 Instant Feedback Task II. You are considering a purchase of NotSoGreat Company Inc.'s stock, currently available on the NYSE for $70 a share. You have calculated that for this investment the required rate of return is 11.3% and the past dividends were growing in accordance with the GDP growth. The economy is expected to grow 2.5% in the foreseeable future. The latest dividend was $5 per share. How much is the stock worth? To calculate the present value of a company with a dividend policy with stable growth, you can use the Gordon Model, which states that: In our case: PV = Do (1+g) (r-g) or PV = D1 (r-g) PV = 5 (1+0.025) (0.113 -0.025) = 58.24 One share of the NotSoGreat Company is worth $58.24, which is less than the current market price of $70. In this case, you decide not to invest. Questions: You are considering a purchase of UnderDog Inc.'s stock, currently available on the NYSE for $105 a share. You have calculated that for this investment the required rate of return is 11.3% and the past dividends were growing in accordance with the GDP growth. The economy is expected to grow 2.0% in the foreseeable future. The latest dividend was $10 per share. 1) How much is the stock worth? 2) What if the GDP growth suddenly increased to 3%?