ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%. Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless. Value of the stock when the dividends are growing at a constant rate is P 0 = D 1 r s − g = D 0 ( 1 + g ) r s − g w h e r e , D 1 = dividend paid next year D 0 = dividend paid this year r s = required rate of return g = growth rate of dividend in perpetuity

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Answer 1

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Chapter 7, Problem 7PROB

Summary Introduction

ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%.

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

$P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity$

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Answer 2

Question

Chapter 7, Problem 7PROB

Summary Introduction

ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%.

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

$P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity$

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Answer 3

Question

Chapter 7, Problem 7PROB

Summary Introduction

ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%.

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

$P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity$

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Answer 4

Question

Chapter 7, Problem 7PROB

Summary Introduction

ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%.

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

$P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity$

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Answer 5

Chapter 7, Problem 7PROB

Summary Introduction

ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%.

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

$P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity$

Answer 6

Chapter 7, Problem 7PROB

Summary Introduction

ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%.

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

$P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity$

Answer 7

Chapter 7, Problem 7PROB

Summary Introduction

ASR recently paid a dividend of $3 which is expected to grow continuously at a rate of 4% in perpetuity. The appropriate rate of return on the stock is 10%.

Gordon constant growth model is used to determine the value of a stock. The model assumes that the dividend paid by the company would continue to grow at a constant rate in the foreseeable future. The present value of all these dividends paid till perpetuity is the market or present value of the stock. The model also assumes that the required rate of return of the stock should always be greater than the growth rate, otherwise, the value would become negative and meaningless.

Value of the stock when the dividends are growing at a constant rate is

$P0=D1rs−g=D0(1+g)rs−gwhere,D1=dividend paid next yearD0=dividend paid this yearrs=required rate of returng=growth rate of dividend in perpetuity$

Answer 8

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Answer 11

Ch. 7 - Prob. 1PROB Ch. 7 - Prob. 2PROB Ch. 7 - Prob. 3PROB Ch. 7 - Prob. 4PROB Ch. 7 - Prob. 5PROB Ch. 7 - Prob. 6PROB Ch. 7 - Prob. 7PROB Ch. 7 - Prob. 8PROB Ch. 7 - Prob. 9PROB Ch. 7 - Prob. 10PROB

Solution Summary: The author explains how the Gordon constant growth model is used to determine the value of a stock.

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