Question

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.05 next year. The growth rate in dividends for all three companies is 6 percent. The required return for each company’s stock is 9 percent, 12 percent, and 15 percent, respectively. What is the stock price for each company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

according to the model of Gordon:

$P=\frac{d}{r-g}$

1.$P=\frac{3.05}{9-6}=101.7$

2.$P=\frac{3.05}{12-6}=50.8$

3.$P=\frac{3.05}{15-6}=33.9$