Answer:
r = 0.09672 or 9.672%
Step-by-step explanation:
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
D0 is the dividend paid recently
D0 * (1+g) is dividend expected for the next period /year
g is the growth rate
r is the required rate of return or cost of equity
55 = 3 * (1+0.04) / (r - 0.04)
55 * (r - 0.04) = 3.12
55r - 2.2 = 3.12
55r = 3.12 + 2.2
r = 5.32 / 55
r = 0.09672 or 9.672%