What Is the Current Value of a Share of ABC

question 99

Multiple Choice

What is the current value of a share of ABC common stock if its current dividend is $1.50 and dividends are expected to grow at the annual compound growth rate of 20 percent into the foreseeable future? Assume the investor has a required rate of return of 15 percent and expects to sell the security in 5 years.

• A) $56.87
• B) $30.00
• C) $25.00
• D) The constant growth rate model cannot be used because the growth rate is greater than the required rate of return.

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