Question

What constant-growth rate in dividends is expected for a stock valued at $32.40 if next year's dividend is forecast at $2.20 and the appropriate discount rate is 13.6%

Answer 1

Answer: 6.81%

Explanation:

To calculate the growth rate, we'll use the formula:

Price = Expected Dividend / Discount - Growth rate

32.40 = 2.20 / 13.60% - Growth rate

13.6% - Growth rate = 2.20/32.40

Growth rate = 13.60% - 6.79%

Growth rate = 6.81%