The current market price of a company’s share is ₹ 90 and the expected dividend per share next year is…
According to the Gordon Constant Growth Dividend Discount Model, the shareholder's required rate of return (ke) is ke = (D1 / P0) + g. Substituting next year's expected…
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The current market price of a company’s share is ₹ 90 and the expected dividend per share next year is ₹ 4.50. If the dividends are expected to grow at a constant rate of 8%, the share holder’s required rate of return is
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Correct answer B
According to the Gordon Constant Growth Dividend Discount Model, the shareholder's required rate of return (ke) is ke = (D1 / P0) + g. Substituting next year's expected dividend D1 = ₹ 4.50, current share price P0 = ₹ 90, and constant growth rate g = 8% gives ke = (4.50 / 90) + 0.08 = 0.05 + 0.08 = 13%.
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UGC NET Management