Holmes Inc stock just paid a dividend of 175 and dividends a

Holmes Inc. stock just paid a dividend of $1.75 and dividends are expected to grow at a constant rate thereafter. If the market capitalization rate is 13.4% per year and a share of Holmes Inc. stock is currently selling for $46.10, what must be the constant growth rate?

7.55%

9.25%

9.60%

15.50%

none of the above

Answer : 9.60%

Constant Dividend Growth Model (Gordan)

P = D/(k-g)

P = Stock Price

D = Dividend

k = Market capitalisation rate

g = Growth rate

46.10 = 1.75/(0.134-g)

46.10 (0.134-g) = 1.75

6.1774 -46.10g = 1.75

46.10g =6.1774-1.75

g = 4.4274 /46.10

g = 0.0960 ~ 9.60 %

Holmes Inc. stock just paid a dividend of $1.75 and dividends are expected to grow at a constant rate thereafter. If the market capitalization rate is 13.4% per

Holmes Inc stock just paid a dividend of 175 and dividends a

Solution

Get Help Now

Submit a Take Down Notice