According to the Gordon-Growth model, if the stock price is $21, required return on equity is 10% and the current dividend is $1, what is the expected growth rate of dividends?

Question

Quizplus · Accepted Answer

Gordon-Growth model formula is: (Dividend / Price) + Expected Dividend Growth

Thus, we can calculate the expected dividend growth as follows:

10% = ($1 / $21) + Expected Dividend Growth

Expected Dividend Growth = 5%

According to the Gordon-Growth Model, If the Stock Price Is