Question

What is the expected constant-growth rate of dividends for a stock currently priced at $50, that just paid a dividend of $4, and has a required return of 18%?

Answer 1

8.9

Step-by-step explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid = d0 x (1 +g)

r = cost of equity

g = growth rate

50 = [4 x (1 +g)] / (0.18 - g)

50(0.18 - g) = 4(1 +g)