Levine Properties' stock has a required return of 10 percent. The stock currently trades at $64.10 per share. The year-end dividend, D1, is expected to be $1.10 per share. After this payment, the dividend is expected to grow by 30 percent per year for the next three years. That is, D4 = $1.10(1.3)3 = $2.4167. After t = 4, the dividend is expected to grow at a constant rate of X percent per year forever. What is the stock's expected constant growth rate after t = 4? In other words, what is X?

Question

Quizplus · Accepted Answer

The Answer of Levine Properties' stock has a required return of 10 percent. The stock currently trades at $64.10 per share. The year-end dividend, D1, is expected to be $1.10 per share. After this payment, the dividend is expected to grow by 30 percent per year for the next three years. That is, D4 = $1.10(1.3)3 = $2.4167. After t = 4, the dividend is expected to grow at a constant rate of X percent per year forever. What is the stock's expected constant growth rate after t = 4? In other words, what is X?

Levine Properties' Stock Has a Required Return of 10 Percent