Stock E is currently priced at $43.44. It just paid a $1.98 dividend and has a...

Stock E is currently priced at $43.44. It just paid a $1.98 dividend and has a cost of equity equal to 11%. What is the market-implied growth rate of the stock?

		7.26%
		6.16%
		7.44%
		4.78%

Solutions

Expert Solution

P0 = D0(1 + g) / (r - g)

43.44 = 1.98(1 + g) / (0.11 - g)

43.44(0.11 - g) = 1.98(1 + g)

4.7784 - 43.44g = 1.98 + 1.98g

4.7784 - 1.98 = 1.98g + 43.44g

2.7984 = 45.42g

g = 2.7984 / 45.42

g = 0.0616 or 6.16%

jeff jeffy answered 2 years ago

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