Given that next period's dividend is 4, the required rate of return is 14%, and the dividend growth rate is 5%, what is the current value of the common stock (using the infinite period Dividend Discount Model)?
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A. B. C. D. E.C
The infinite period Dividend Discount Model postulates that the current value of a common stock is equal to D1 / (k - g), where D1 is next period's dividend, k is the required rate of return, and g is the growth rate of dividends. In this question, the common stock is worth 4 / (0.14 - 0.05) = $44.44.