Answer: 17.6%
Explanation:
Given that,
Dividend growth(g) = 5% per year
Last dividend = $6 per share
Stock sold (P0) = $50 per share
Expected dividend(D) = Last dividend(1 + g)
= $6 (1 + 5%)
= $6.30
[tex]cost\ of\ equity=\frac{D}{P0}\times100+g[/tex]
[tex]cost\ of\ equity=\frac{6.30}{50}\times100+5%[/tex]
= 12.6% + 5%
= 17.6%