The market price of a stock is $22.74 and it just paid a dividend of $1.87....

The market price of a stock is $22.74 and it just paid a dividend of $1.87. The required rate of return is 11.80%. What is the expected growth rate of the dividend? Round to 2 decimal places. Also if, the market price of a stock is $24.46 and it is expected to pay a dividend of $1.48 next year. The required rate of return is 11.74%. What is the expected growth rate of the dividend? Also round to 2 decimal places. (2 part question but 1 question unfortunately) thank you. will rate thumbs up!

Solutions

Expert Solution

We will use Constant growth model to find the growth rate of the dividend-

Price = (Dividend paid*(1+growth rate))/(required return - growth rate)

Question 1

$22.74 = ($1.87*(1+g))/(11.8%-g)

Solving for g

We get

g = 3.304% or 3.3%

Question 2

$24.46 = $1.48/(0.1174-g)

0.1174 - g = 1/16.52

1.94 - 16.52g = 1

0.94/ 16.52 = g

5.69% = g

jeff jeffy answered 2 years ago

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