# If expected dividends grow at 6% and the appropriate discount rate is 10%, what is the value of a...

## Question:

If expected dividends grow at 6% and the appropriate discount rate is 10%, what is the value of a stock with an expected dividend of $2.75? a.$68.75

b. $103.12 c.$34.38

d. $69.75 ## Dividend growth model: The dividend growth model assumes that dividends will grow at a constant rate and all the future cash inflows are discounted to know the present value of a stock. ## Answer and Explanation: We will use the following formula to calculate our answer: {eq}\displaystyle\text{Value of stock} = \displaystyle\frac{\text{Dividend}}{\text{Rate of return - Growth rate}} {/eq} {eq}\displaystyle\text{Value of stock} = \displaystyle\frac{\$2.75}{10\% - 6\%} {/eq}

{eq}\displaystyle\text{Value of stock} = \displaystyle\\$68.75 {/eq}