An organization pays a dividend of Rs. 4 per share. The current market price is Rs. 100, and dividends are expected to grow constantly at 5%. What is the required rate of return?
- 5%
- 7%
- 9%
- 12%
Explanation
Given:
- Dividend (D₀) = Rs. 4
- Market Price (P₀) = Rs. 100
- Growth rate (g) = 5%
Step 1: Calculate next year’s dividend
D₁ = D₀ × (1 + g)
= 4 × 1.05
= Rs. 4.20
Step 2: Use the Gordon Growth Model
Required Return:
D1/
100 +0.05
Related MCQs
- 5%
- 7%
- 9%
- 12%
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