Question

Shares of do naught common stock are currently selling for $46.90. the last dividend paid was $2.21 per share and the market rate of return is 15.8 percent. at what rate is the dividend growing?

Answer 1

Here you go,

Current Selling Price, P0 = $46.90

Last Dividend Paid, D0 = $2.21

Market rate of return, r = 15.8%

Growth rate, g = ?

D1 = D0*(1+g)

D1 = $2.21*(1+g)

r = D1/P0 + g

0.158 = 2.21*(1+g) / 46.90 + g

7.4102 = 2.21 + 2.21g + 46.90g

5.2002 = 49.11g

g = 0.1059 = 10.59%

Therefore, the answer is 10.59%