Question

The market price of a stock is $21.37 and it just paid a dividend of $1.52. The required rate of return is 11.95%. What is the expected growth rate of the dividend?

The market price of a stock is $24.04 and it is expected to pay a dividend of $1.46 next year. The required rate of return is 11.64%. What is the expected growth rate of the dividend?

I am unclear about the differences and answers between these two

**Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))**

Answer 1

a) Expected growth rate of the dividend?

Calculate the growth rate as follows:

Required return = ((Expected dividend)/Current price) + Growth rate

11.95% = ((1.52*(1+growth rate)/21.37) + growth rate

11.95% = 7.1127% + 7.1127%growth rate +growth rate

1.071127growth rate = 11.95% - 7.1127%

Growth rate = 0.048373/1.071127

Growth rate = 0.0451 or 4.51 %

B) Expected growth rate of the dividend?

Calculate the growth rate as follows:

Required return = ((Expected dividend)/Current price) + Growth rate

11.64% = (1.46/24.04) + growth rate

Growth rate = 11.64% - 6.07%

Growth rate = 5.57%

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