Transportation stocks currently provide an expected rate of return of 15%.TTT,a large transportation company,will pay a year-end dividend of $3 per share.If the stock is selling at $60 per share,what must be the market's expectation of the constant growth rate of TTT dividends?

Question

Quizplus · Accepted Answer

To calculate the constant growth rate of TTT dividends, we can use the Gordon Growth Model:

Expected return = (dividend yield) + (constant dividend growth rate)

15% = (3/60) + (constant dividend growth rate)

Solving for the constant dividend growth rate, we get:

Constant dividend growth rate = 10%

Therefore, the market's expectation of the constant growth rate of TTT dividends is 10%. The correct answer is (B).

Transportation Stocks Currently Provide an Expected Rate of Return of 15%.TTT,a