What is the expected constant growth rate of dividends for a stock currently priced at $50, that just paid a dividend of $4, and has a required return of 18 percent?
A)3.41 percent
B)5.50 percent
C)9.26 percent
D)12.5 percent $50 = $4(1 + g)/(.18 - g)

Question

Quizplus · Accepted Answer

Using the formula:
$50 = $4(1 + g) / (.18 - g)

Simplifying the equation, we get:
$50(.18 - g) = $4(1 + g)
.09 - .50g = g + .25g
.09 = .75g
g = .09 / .75 = 0.122 or 12.2%

Therefore, the expected constant growth rate of dividends for the stock is 12.2%, which is closest to option C - 9.26%.

What Is the Expected Constant Growth Rate of Dividends for a Stock