If the stock of Sun Computers is selling for $34 and the current dividend is $0.48, what is the implied constant growth rate of dividends to an investor who requires a 14% rate of return?
A)12.54%
B)12.41%
C)14.00%
D)15.41%

Question

Quizplus · Accepted Answer

The implied constant growth rate (g) can be calculated using the Gordon Growth Model: Price = Dividend / (Required Rate of Return - Growth Rate). Rearranging gives Growth Rate = Required Rate of Return - (Dividend / Price). Substituting the given values: 0.14 - (0.48 / 34) = 0.1241 or 12.41%.

If the Stock of Sun Computers Is Selling for $34