Final answer:
The expected constant growth rate of dividends for the stock can be computed using the Gordon Growth Model, with inputs from the current price, anticipated dividend, CAPM-derived required rate of return, and market risk premiums.
Step-by-step explanation:
The question requires calculating the expected constant growth rate of dividends for a corporation's stock. To find this rate, we typically use the Gordon Growth Model which assumes a perpetual growth of dividends at a constant rate. The model is represented by the formula P0 = D1 / (k - g), where P0 is the current stock price, D1 is the expected dividend at the end of the next year, k is the required rate of return (cost of equity), and g is the expected growth rate of dividends that we aim to calculate.
Given that the current stock price (P0) is $41.00 per share, and the anticipated dividend next year (D1) is $2.50 per share, we can calculate k using the Capital Asset Pricing Model (CAPM). CAPM is k = risk-free rate + beta * (market risk premium). Based on the details provided, k is 5.9% + 0.9 * 5.0% = 10.4%.
With all the components of the Gordon Growth Model in place, we can rearrange the model to solve for the growth rate g: g = k - (D1 / P0). Plugging the numbers in, we get g = 10.4% - ($2.50 / $41.00), which yields an expected constant growth rate which can then be calculated to find the answer.