The current market price of a company's share is Rs. 90 and the expected dividend per share next year…
According to Myron Gordon's constant-growth dividend valuation model, P_0 = D_1 / (k_e - g), which rearranges to give the shareholder's required rate of return as k_e = (D_1…
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The current market price of a company's share is Rs. 90 and the expected dividend per share next year is Rs. 4.5. If the dividend is expected to grow at a constant rate of 8%, the shareholder's required rate of return will be:
Answer and explanation
Correct answer D
According to Myron Gordon's constant-growth dividend valuation model, P_0 = D_1 / (k_e - g), which rearranges to give the shareholder's required rate of return as k_e = (D_1 / P_0) + g. Substituting D_1 = Rs. 4.5, P_0 = Rs. 90, and g = 8% (0.08) yields k_e = (4.5 / 90) + 0.08 = 0.05 + 0.08 = 0.13, or 13%.
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UGC NET Commerce