Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?
A) 6.01%
B) 6.17%
C) 6.33%
D) 6.49%
E) 6.65%

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Expected dividend }\left(\mathrm{D}_{1}\right) & \$ 1.25 \
\text { Stock price } & \$ 32.50 \
\text { Required return } & 10.5 \% \
\text { Dividend yield } & 3.85 \% \
\text { Growth rate }=r_{\mathrm{S}}-\mathrm{D}_{1} / \mathrm{P}_{0}= & 6.65 \%
\end{array}$

Franklin Corporation Is Expected to Pay a Dividend of $1