Final answer:
The expected growth rate of the dividend for the stock can be calculated using the Gordon Growth Model formula, rearranged to solve for the dividend growth rate (g): g = k - (D1 / P). By substituting the provided values into this formula, we can determine the expected growth rate.
Step-by-step explanation:
The student is asking about how to calculate the expected growth rate of a dividend. Given the market price of the stock, expected dividend payment, and the required rate of return, the expected growth rate of the dividend can be calculated using the Gordon Growth Model (also known as the Dividend Discount Model).
In this model, the price of a stock (P) is equal to the next year's expected dividend (D1) divided by the difference between the required rate of return (k) and the dividend growth rate (g). Hence, the formula is P = D1 / (k - g). We can rearrange the formula to solve for the dividend growth rate: g = k - (D1 / P).
Substituting the given values, we get g = 11.77% - ($1.65 / $23.10). Note that rates should be considered in decimal form for calculation, meaning 11.77% is used as 0.1177. After performing the calculations, we can find the expected dividend growth rate.