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Ede4ka [16]
3 years ago
12

Shares of ABBO stock are currently selling for $14.43 a share. The last annual dividend paid was $1.61 a share, and dividends in

crease at a constant rate. If the market rate of return is 14 percent, what is the dividend growth rate
Business
2 answers:
alexandr1967 [171]3 years ago
4 0

Answer:

Growth rate  = 2.56%

Explanation:

Using the divided growth model

P = D× (1+g)/(ke-g)

<em>P- price of stock, g- annual growth rate, Do- last dividend paid, Ke- market return</em>

<em>Substituting, we have</em>

14.43 = 1.61(1+g)/(0.14-g)

<em>cross multiplying</em>

=14.43× (0.14-g) = 1.61 + 1.61g

2.0202- 14.43g = 1.61 + 1.61g

2.0202 -1.61 = 1.61g + 14.43g

0.4102 =16.04g

g = 0.025573566 × 100

Growth rate  = 2.56%

Nata [24]3 years ago
3 0

Answer:

The dividend growth rate is  3%

Explanation:

Given that:

  • Dividend : $1.61 (D)
  • Price:  $14.43 (P)
  • Market rate of return: 14% = 0.14 (r)

As we know that, the formula to find the price of a stock is:

  • P = D / (r - g)

In this question, we have:

14.43 = 1.61 / (0.14 -g)

<=> 0.14 - g = 1.61 / 14.43

<=> g = 0.14 - 0.11

<=> g = 0.03 = 3%

So the dividend growth rate is  3%

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