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

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