Whitewaters stock is trading at 4200 per share The stock is

Whitewater\'s stock is trading at $42.00 per share. The stock is expected to have a year-end diridend of $2.40 per share (D which is expected to grow at some constant rate g throughout tune The stock\'s required rate of retun is 12 perceat If you are an analyst nho belieres in efficient markets, what is your forecast of g? Answer in a percentage without the % ngn and round it to two decimal places, ie 10.54 1054% (or 0.1054)

Solution

Using Dividend Growth Model

Growth Rate = Required Return - (Dividend / Stock Price)

Growth Rate = 12% - ($2.40 / $42)

Growth Rate = 0.12 - 0.0571

Growth Rate = 6.29%