Question

question 21
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assume a future expected constant growth of 10%, a dividend of r11, and a current price of r100 per share. what return can an investor expect?
a. 21.0%
b. 19.3%
c. 10.3%
d. 9.3%
clear my choice

Explanation:

Step1: Recall the Gordon - Growth Model formula

The Gordon - Growth Model formula for the expected return $r$ is $r=\frac{D_1}{P_0}+g$, where $D_1$ is the next - year's dividend, $P_0$ is the current price of the stock, and $g$ is the constant growth rate.
We are given that $D_1 = 11$, $P_0=100$, and $g = 0.1$.

Step2: Calculate the expected return

Substitute the given values into the formula: $r=\frac{11}{100}+0.1$.
$r = 0.11+0.1$.
$r=0.21$ or $21\%$.

Answer:

A. 21.0%