Question
Asked Oct 16, 2019
11. A company just paid a dividend of $4 and anticipates increasing its dividend at a constant rate of 5%
per year, indefinitely. The current price of the Bond is $30. Use the Gordon Growth Model to calculate
the required rate of return, k.
Value Do (1+g
k-g
D1
k-g
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11. A company just paid a dividend of $4 and anticipates increasing its dividend at a constant rate of 5% per year, indefinitely. The current price of the Bond is $30. Use the Gordon Growth Model to calculate the required rate of return, k. Value Do (1+g k-g D1 k-g

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Expert Answer

Step 1

Calculate the required rate ...

Dox(1+g)
P =
k-g
$4x(1+5%)
$30=
k-5%
$4.2
k-5%
$30
k =14%5%
19%
help_outline

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Dox(1+g) P = k-g $4x(1+5%) $30= k-5% $4.2 k-5% $30 k =14%5% 19%

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