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.

Solutions

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 1 year ago

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