Question

Calculate Growth Rate (g) Current Stock Price = D*(1+g)/(ke - g) 36 = 2.40*(1+g)/(12% - g) 4.32 - 36g = 2.40 + 2.40g g = (4.32 - 2.40)/(38.40) = 5%

Calculate Growth Rate (g)

Current Stock Price = D*(1+g)/(ke - g)

36 = 2.40*(1+g)/(12% - g)

4.32 - 36g = 2.40 + 2.40g

g = (4.32 - 2.40)/(38.40) = 5%

Where 4.32 came from?  Please explain me resolution step by step of this equation

Answer 1

Answer :

From the amounts given in question :

Current Stock Price = 36

D = 2.40

Ke = 12% = 0.12

The formula for Calculation of Current Stock Price is :

So, Putting the amounts in above formula :

By solving above Equation :

4.32 - 36g = 2.40 + 2.40 g

4.32 - 2.40 = 2.4g + 36 g

38.4 g = 1.92

g = 1.92 / 38.4

g = 0.05

g = 5%

So, 4.32 came from the multiplication of 36 and 0.12