A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $2 per share (D1 = $2)

A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $2 per share (D₁ = $2), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 12% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of g? Round the answer to three decimal places.

%

Expert Solution

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

0.12=(2/90)+Growth rate

Growth rate=0.12-(2/90)

which is equal to

=9.778%(Approx)

jeff jeffy answered 2 years ago

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