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Constant Growth

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Suppose that in 2006 the expected dividends of the stocks in a broad market index equaled $210 million when the discount rate was 9.5% and the expected growth rate of the dividends equaled 6.5%. Using the constant growth formula for valuation, if interest rates increase to 10.5%, what will the value of the market change by?

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Solution Summary

The expert examines constant growth dividends. The formula for valuation is determined.

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Constant growth formula states that

P = D/(r-g) where p is price, D is annual dividend, r is ...

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