Zonberg Corporation's current stock price is $50 per share, while its current dividends are $2.50 per share. If the rate of return is 12%, calculate the dividend growth rate.

A) 5.31%
B) 6.67%
C) 7.53%
D) 8.57%
E) 9.84%

Question

Kiara Perez · Accepted Answer

Final Answer : B, Explanation :  The dividend growth rate (g) can be calculated using the Gordon Growth Model: Price = Dividend / (Rate of Return - Growth Rate). Rearranging gives Growth Rate = Rate of Return - (Dividend / Price). Substituting the given values: g = 0.12 - (2.50 / 50) = 0.12 - 0.05 = 0.067 or 6.67%.

Zonberg Corporation's current stock price is $50 per share, while its current dividends are $2.50 per share. If the rate of return is 12%, calculate the dividend growth rate.

A) 5.31%
B) 6.67%
C) 7.53%
D) 8.57%
E) 9.84%

Definitions

Learning Objectives

Learning Objectives

Related questions

Zonberg Corporation's current stock price is $50 per share, while its current dividends are $2.50 per share. If the rate of return is 12%, calculate the dividend growth rate.A) 5.31%B) 6.67%C) 7.53%D) 8.57%E) 9.84%

Definitions

Learning Objectives

Learning Objectives

Related questions

Zonberg Corporation's current stock price is $50 per share, while its current dividends are $2.50 per share. If the rate of return is 12%, calculate the dividend growth rate.

A) 5.31%
B) 6.67%
C) 7.53%
D) 8.57%
E) 9.84%