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liraira [26]
2 years ago
7

g . Kings Donut Inc common stock sells for $39.86 a share at a market rate of return of 9.5%. The company just paid its annual d

ividend of $1.20. What is the rate of growth of its dividend? Assume stock is in equilibrium.
Business
1 answer:
Simora [160]2 years ago
7 0

6.29% is the rate of growth

<u>Explanation:</u>

<u>The following formula is used </u>

Price = D1 / ke -g

39.86 = 1.2 multiply with (1 + g) / 0.095 - g

3.7867 – 39.86 g = 1.2 + 1.2 g

2.5867 = 41.06 g

Now, we have to calculate the value of g  

g = 2.5867 divide 41.06

= 0.0629  

= 6.29 %

Where:

G = growth, ke = market rate of return, D1 = dividend ( annual), P = price of the share of company

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