A company is expected to pay a dividend of $1.50 per share
next year. The dividends are expected to
grow at 2.5% per year indefinitely. If
the required return on similar investments is 5%, what is the current price of
the stock?

Based on the dividend discount model, the current stock price is $60.00. The formula is as follows: Price of stock = Dividend per share / (Discount Rate - Dividend Growth Rate). Entering our values into the dividend discount model gives us: $1.50/(5% - 2.5%) = $60.00.