A stock is trading at $55 per share. The stock is expected to have a year-end di

Question

A stock is trading at $55 per share. The stock is expected to have a year-end dividend of $2 per share and expected to grow at same constant rate g throughout time. The stocks required rate of return is 16%(assume the market is in equilibrium with the required return equal to the expected return) what is your forecast of g? A stock is trading at $55 per share. The stock is expected to have a year-end dividend of $2 per share and expected to grow at same constant rate g throughout time. The stocks required rate of return is 16%(assume the market is in equilibrium with the required return equal to the expected return) what is your forecast of g?

Explanation / Answer

P0=D1/r-g

Where, Po is market price, Dq1 is dividend at year end , r= rate of return and g is growth rate

55=2/.16-g

g=12.36%

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