Use the Gordon growth model: Price at t=0 "P0" = D1 / (r - g), where D1 is the next dividend ($1), r as above (missing) and g (10%). Use decimal forms.
E.g. if r = 6%
P0 = $1 / (0.10 - 0.06)
= $1 / 0.04
= $25
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Assume price of a stock today is $40, expected growth rate of dividends is 10% and annual dividend one year forward is $1.0; Using the precedent data, compute the expected long-term total return on the stock using the constant-growth dividend discount model. How to answer this question?
