Llano's stock is currently selling for $51. The expected dividend one year from now is $1.50 and the required return is 10%. What is this ﬁrm's dividend growth rate assuming the constant dividend
Growth model is appropriate?

Question

Quizplus · Accepted Answer

Using the Gordon Growth Model: Price = Dividend / (Required Return - Growth Rate). Solving for the growth rate: $51 = $1.50 / (0.10 - g), gives g = 0.07 or 7%.

Llano's Stock Is Currently Selling for $51