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2 October, 14:08

Albright Motors is expected to pay a year-end dividend of $3.00 a share (D1 = $3.00). The stock currently sells for $30 a share. The required (and expected) rate of return on the stock is 16 percent. If the dividend is expected to grow at a constant rate, g, what is g? Select one: a. 13.00% b. 10.05% c. 6.00% d. 5.33% e. 7.00%

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  1. 2 October, 14:21
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    g = 6%

    so option c is correct

    Explanation:

    given data

    dividend D = $3.00

    sells = $30

    rate = 16%

    to find out

    what is g choose correct option

    solution

    we know here rate of return is express as

    rate of return = D / S + g ... 1

    put here value in equation 1

    rate 16%, D is dividends and S is sells

    so

    rate of return = dividend / sells + g

    16% = 3 / 30 + g

    g = 0.16 - 0.10

    g = 0.06

    g = 6%

    so option c is correct
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