A firm is expected to pay a $4.00 dividend per share. The stock is selling in the market place for $55.00 per share. If investors are demanding 12% on this stock, what is this stock's growth rate?

Question

Quizplus · Accepted Answer

The correct answer is A because the growth rate of the stock is 4.73%. This is calculated using the formula: Growth rate = (Dividend yield - Required return) / (1 - Required return). In this case, the dividend yield is 4.00 / 55.00 = 7.27%, and the required return is 12%. Plugging these values into the formula, we get: Growth rate = (7.27% - 12%) / (1 - 12%) = 4.73%.

A Firm Is Expected to Pay a $4