Please explain with the answer! 1) Using the Gordon Growth Model, a stock's current price decreases...
Please explain with the answer!
1) Using the Gordon Growth Model, a stock's current price decreases when:
A. the growth rate of the dividends decreases
B. the expected dividend payment increases
C. the dividend growth rate increases
D. the required return on equity decreases
2) According to the Gordon Growth Model, what is the value of a stock with a current dividend of $2, required return on equity of 100% and expected growth rate of dividends of 50%?
A. $3
B. $30
C. $6
D. $20
Homework Answers
Ans1) the correct option is A. the growth rate of the dividends decreases
Ans2) the correct option is C) $6
stock price = 2/ (100% - 50%) + 2 = 4
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