Question

Albright Motors is expected to pay a year-end dividend of $3.00 a share (D1 = $3.00). The stock currently sells for $30 a share. The required (and expected) rate of return on the stock is 16 percent. If the dividend is expected to grow at a constant rate, g, what is g? Select one: a. 13.00% b. 10.05% c. 6.00% d. 5.33% e. 7.00%

Answer 1

g = 6%

so option c is correct

Step-by-step explanation:

given data

dividend D = $3.00

sells = $30

rate = 16%

to find out

what is g choose correct option

solution

we know here rate of return is express as

rate of return = D / S + g .............1

put here value in equation 1

rate 16% , D is dividends and S is sells

so

rate of return = dividend / sells + g

16% = 3 / 30 + g

g = 0.16 - 0.10

g = 0.06

g = 6%

so option c is correct