Zonberg Corporation's current stock price is $50 per share, while its current dividends are $2.50 per share. If the rate of return is 12%, calculate the dividend growth rate.

Question

Quizplus · Accepted Answer

The dividend growth rate (g) can be calculated using the Gordon Growth Model: Price = Dividend / (Rate of Return - Growth Rate). Rearranging gives Growth Rate = Rate of Return - (Dividend / Price). Substituting the given values: g = 0.12 - (2.50 / 50) = 0.12 - 0.05 = 0.067 or 6.67%.

Zonberg Corporation's Current Stock Price Is $50 Per Share, While