What should be the current price of a share of stock if a $5 dividend was just paid, the stock has a required return of 20%, and a constant dividend growth rate of 6%? a. $19.23 b. $25.00 c. $35.71 d. $37.86

Current Price of the Share Stock is $ 37.86 (D)

Explanation:

Using dividend valuation method with a constant growth rate assumption, share price is calculated as : Po =D1/(Ke-g).

Where;  Po ⇒Market Value excluding any dividend currently payable

            D1= Do(1+g)⇒Expected dividend in one year's time

            Ke =Required rate of return by shareholders

             g= Dividend growth rate

Calculation

D1 = 5(1+0.06)= $5.3

Hence, Po= 5.3/(0.20-0.06)

            Po=$37.86

The share price is expected to reflect the future expected stream of income i.e  dividends and capital gains ,discounted at an appropriate cost of capital.

Some of the assumptions of dividend valuation method include but not limited to the following:

- it assumed that investors act rationality and in the same way ;

-the dividend either show growth or no growth;

-the discount rate used exceeds the dividend growth rate.

the correct answer would be b, when, queen, calder hall and london.

explanation:

we always capitalize words when a paragraph or sentence is starting, when an important name is used, when a place is being written, or simply when a noun is used, etc. so in this sentence, sentence is starting from 'when', so it will be written in capital letters. secondly, queen is considered to be an important person, so it will also be written in capital letter. next, the name of the town is mentioned, i-e calder hall, which will also be written in capital letters. in the last,   city name is being used, 'london', which will also be written in capital letters. so option b is the most appropriate one.