What is the expected constant-growth rate of dividends for a stock with current price of $100,expected dividend payment of $10 per share,and a required return of 16%?
A) 6.00%
B) 6.25%
C) 8.00%
D) 10.00%

Question

Quizplus · Accepted Answer

The constant-growth rate (g) can be calculated using the Gordon Growth Model formula: Price = Dividend / (Required Return - Growth Rate). Rearranging gives Growth Rate = Required Return - (Dividend / Price). Substituting the given values: 16% - ($10 / $100) = 16% - 10% = 6%.

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