Question

Shares of ABBO stock are currently selling for $29.06 a share. The last annual dividend paid was $1.50 a share and dividends increase at a constant rate. If the market rate of return is 10 percent, what is the dividend growth rate

Answer 1

Answer:

4.6

Explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

29.06 = 1.5 X (1 + G) / 0.1 - G

29.06(0.1 - G) = 1.5 + 1.5g

2,906 - 29,06g = 1.5 + 1.5g

combine like terms