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Backford Company just paid a dividend yesterday of​ $2.25 per share. The​ company's stock is currently selling for​ $60 per​ share, and the required rate of return on Backford Company stock is​ 16%. What is the growth rate expected for Backford Company dividends assuming constant​ growth? A.​9.89%B.​10.87%C.​11.81%D.​9.47%

Respuesta :

Answer:

option c i.e. g=11.81%

Explanation:

growth can be obtained by using given relation:

[tex]rate\ of\  return = \frac{D(1+g)}{current\ price} +g[/tex]

where

D IS DIVIDEND = 2.25

current price = $60

rate of return = 16%

[tex]16=  \frac{2.25(1+g)}{60} +g[/tex]

0.16=  0.0375(1+g)+ g

g=11.81%

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