What constant-growth rate in dividends is expected for a stock valued at $32.00 if next year's dividend is forecast at $2.00 and the appropriate discount rate is 13%?
A) 5.00%
B) 6.25%
C) 6.75%
D) 15.38%

Question

Quizplus · Accepted Answer

The constant-growth rate in dividends is calculated using the Gordon Growth Model:Dividend Growth Rate = (Expected Dividend / Current Stock Price) * (Discount Rate - Constant Growth Rate)$2.00 / $32.00 = 0.13 - Constant Growth RateConstant Growth Rate = 0.13 - 0.0625 = 0.0675 or 6.75%

What Constant-Growth Rate in Dividends Is Expected for a Stock