Using the infinite period Dividend Discount Model, what is the value of a stock with the following characteristics?
Current dividend $6 -
Long term dividend growth rate 8%
Required rate of return 12%
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A. B. C. D. E. F.E
The infinite period DDM indicates that:
Value = (Dividend for period 1)/k-g where k is the required rate of return and g is the growth rate. In this case, Value = ($6 x 1.08)/(.12-.08) = $6.48/.04 = $162.