(Stocks) A stock with the required rate of return of 13.54% is expected to pay a...

(Stocks) A stock with the required rate of return of 13.54% is expected to pay a $0.81 dividend over the next year. The dividends are expected to grow at a constant rate forever. The intrinsic value of the stock is $22.07 per share. What is the constant growth rate (in %, to the nearest 0.01%)? E.g., if your answer is 4.236%, record it as 4.24.

Solutions

Expert Solution

Required return=(D1/Current price)+Growth rate

0.1354=(0.81/22.07)+Growth rate

Growth rate=0.1354-(0.81/22.07)

which is equal to

=9.87%(Approx)

jeff jeffy answered 1 year ago

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