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9 July, 10:09

The market price of a stock is $22.84 and it is expected to pay a dividend of $1.54 next year. The required rate of return is 11.37%. What is the expected growth rate of the dividend?

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  1. 9 July, 11:09
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    The correct answer is 4.63%.

    Explanation:

    According to the scenario, the given data are as follows:

    Market price = $22.84

    Expected dividend = $1.54

    Rate of return = 11.37%

    So, we can calculate the growth rate by using following formula:

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

    by putting the value we get,

    11.37% = ($1.54 : $22.84) + Growth rate

    11.37% = 0.0674 + Growth rate

    Growth rate = 11.37% - 6.74%

    Growth rate = 4.63%
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