Grant Corporation's stock is selling for $40 in the market. The company's beta is 0.8, the market risk premium is 6 percent, and the risk-free rate is 9 percent. The previous dividend was $2 (i.e., D0 = $2) and dividends are expected to grow at a constant rate.
What is the growth rate for this stock?
The growth rate can be found by using the dividend discount model. The dividend discount model says that
Market Price = Expected Dividend ...
The solution explains the calculation of the growth rate in dividends using the constant growth model.