Helix common stock currently sells for $30, and its current dividend is $1.50. If the required rate of return on Helix stock is 15%, what is the implied growth rate of its earnings and dividends?
A) 13.5%
B) 9.5%
C) 10.0%
D) 30.0%

Question

Quizplus · Accepted Answer

The implied growth rate can be found using the Gordon Growth Model (Dividend Discount Model for a perpetuity), which is P = D / (r - g), where P is the price, D is the dividend, r is the required rate of return, and g is the growth rate. Rearranging for g gives g = r - (D/P). Substituting the given values: g = 0.15 - (1.5/30) = 0.15 - 0.05 = 0.10 or 10%. However, the question asks for the implied growth rate, and the closest option to 10% provided is 9.5%.

Helix Common Stock Currently Sells for $30, and Its Current