What constant growth rate in dividends is expected for a stock valued at $37.82 if a $4.00 dividend has just been paid and the discount rate is 15%?

Answer: 4.42%

Explanation:

The formula we will use to solve this question is;

Stock Value = (Dividend per share/Discount rate) - dividend growth rate

The following have been given from the question:

Stock Value = $ 37.82

Discount rate = 15% = 0.15

Dividend = $ 4

Then, we will put the values into the formula

Stock Value = (Dividend per share/Discount rate) - dividend growth rate

Let the dividend growth rate be y

37.82 = 4/0.15-y

Cross multiply

37.82 (0.15 - y) = 4

5.673 - 37.82y = 4

Collect like terms

37.82y = 5.673 - 4

y = 1.673/37.82

y = 0.0442

y = 4.42%

The dividend growth rate will be 4.42%