A Stock Offers an Expected Dividend of $3

question 40

Essay

A stock offers an expected dividend of $3.50, has a required return of 14%, and has historically exhibited a growth rate of 6%. Its current price is $35.00 and shows no tendency to change. How can you explain this price based on the constant-growth dividend discount model?

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Definitions:

Router

A networking device that forwards data packets between computer networks, directing traffic on the Internet.

Dial-Up

A form of Internet access that uses telephone lines to establish a temporary Internet connection via a modem, characterized by relatively slow data transmission speeds.

Fiber-Optic

A technology that uses thin strands of glass or plastic fibers to transmit data as pulses of light, known for high-speed data transfer and long-distance communication capabilities.

Cable

A thick wire covered by an insulating material, used for transmitting electricity or telecommunication signals.