Question

The market price of a stock is

$23.52 and it is expected to pay a dividend of $1.68 next year. The
required rate of return is 11.31%. What is the expected growth rate
of the dividend?

Answer 1

The expected growth rate of the dividend can be calculated using the Gordon Growth Model formula. In this case, the growth rate is approximately 7.14%.

Step-by-step explanation:

To calculate the expected growth rate of the dividend, we can use the Gordon Growth Model formula:

Growth Rate = (Dividend / Stock Price) - Rate of Return

In this case, the dividend is $1.68, the stock price is $23.52, and the required rate of return is 11.31%. Plugging these values into the formula, we get:

Growth Rate = ($1.68 / $23.52) - 0.1131

Growth Rate ≈ 0.0714, or 7.14%