What constant growth rate in dividends is expected for a stock valued at $37.82 if a $4.00 dividend has just been paid and the discount rate is 15%?

4.42%

Explanation:

The formula we will use to solve this question is;

Stock Value = (Dividend per share/Discount rate) – dividend growth rate

The following have been given from the question:

Stock Value = $ 37.82

Discount rate = 15% = 0.15

Dividend = $ 4

Then, we will put the values into the formula

Stock Value = (Dividend per share/Discount rate) – dividend growth rate

Let the dividend growth rate be y

37.82 = 4/0.15-y

Cross multiply

37.82 (0.15 –y) = 4

5.673 – 37.82y = 4

Collect like terms

37.82y = 5.673 – 4

y = 1.673/37.82

y = 0.0442

y = 4.42%

The dividend growth rate will be 4.42%

The dividend growth rate is the percentage change in the value of the dividend over a period of time. The value of dividends grows due to an increase in the profit margin of the company or due to the policies of the company for the constant growth rate.

The constant dividend growth rate is 4.42%

Computation:

Given,

stock value = $37.82

dividend per share = $4

discount rate = 15%

The dividend growth rate is computed by the stock value formula.

To know more about dividend growth rate, refer to the link:

link

a.   is the correct choice.

good luck. : )