What is the value of a share that has just paid a dividend of $1, growing at 5% and a required rate of return of 10%?
Question
Solution 1
To calculate the value of a share that has just paid a dividend, we can use the Gordon Growth Model (also known as the Dividend Discount Model). The formula is:
P = D / (r - g)
where: P = price of the stock D = dividend just paid r = required rate of return g = growth rate of the dividend
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