Question

CDB stock is currently priced at $76. The company will pay a dividend of $4.41 next year and investors require a return of 10.6 percent on similar stocks. What is the dividend growth rate on this stock

Answer 1

Answer: 4.8%

Step-by-step explanation:

Answer 2

g = 4.8%

Explaination

We can use the Gordon growth model to calculate stock pice.

P = D(1) / (r - g)

P: Stock price ($76)

D(1): Dividend paid at year-end ($4.41)

r: required rate of return (10.6%)

g: dividend growth rate (Missing value)

By inputting numbers into the above equation, we have the following:

76 = 4.41 / (0.106 - g)

--> g = 4.8%