You Are Interested in Buying a Share of Stock in LMU

question 1

Multiple Choice

You are interested in buying a share of stock in LMU Company. You expect a dividend payment of $10 next year and that the dividend will grow by 6% per year thereafter. You desire an 8% return on your purchase. According to the Gordon growth model, what is the maximum price you would pay for a share of this stock?

• A)$5
• B)$25
• C)$100
• D)$500

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Definitions:

Trend Percentage

A financial analysis technique that compares certain line items in financial statements over different periods to identify patterns and growth rates.