Assume the latest dividend per share,paid recently,for ACD Ltd is 90 cents and that the required rate of return on these shares is 15% p.a.If the current share price is $19.80,the expected growth rate on these shares is:
A)0%.
B)10%.
C)5%.
D)7.5%.

Question

Quizplus · Accepted Answer

To calculate the expected growth rate, we can use the Gordon Growth Model:
Current share price = Dividend per share / (Required rate of return - Expected growth rate)
$19.80 = $0.90 / (0.15 - Expected growth rate)
0.15 - Expected growth rate = $0.90 / $19.80
0.15 - Expected growth rate = 0.0455
Expected growth rate = 0.1045 or 10.45%
Therefore, the answer is B) 10%.

Assume the Latest Dividend Per Share,paid Recently,for ACD Ltd Is