Posted: September 23rd, 2016

You use constant growth dividend valuation model (i.e. Gordon model) to find the current market price of a stock.

You use constant growth dividend valuation model (i.e. Gordon model) to find the current market price of a stock. The required rate of return for this stock increases from 15 to 17 percent combined with an increase in the growth rate from 7 to 9 percent. Given these changes, show whether the price of the stock will rise or fall and by what percent?