s require a return of perce tonsi last as what sthe d ie ge

s require a return of ?? perce tonsi last as what sthe d ie ge en een co estock is cu en ypriced at this stock? 78. The company will pay a dvidend o $449 next year and mest 0 5.04% 4.61% 470% 0494% ? 576%

Solution

As per DDM theory we know that for a constant growth firm, the equation will be Po = D1 ÷ (Re - g).

In the given case Po price is 78. D1 dividend is 4.49 and Re is 10.7%. g growth is ?

So solving the equation we get,

(Re - g) = D1 ÷ Po

(0.107 - g) = 4.49 ÷ 78

(0.107 - g) = 0.0576

g = 0.0494 i.e. 4.94%

Hence the answer will be D) 4.94%

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