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Growth Rate of Dividends (Constant Rate)

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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?

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Solution Summary

The solution explains the calculation of the growth rate in dividends using the constant growth model.

Solution Preview

The growth rate can be found by using the dividend discount model. The dividend discount model says that
Market Price = Expected Dividend ...

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