The market price of a stock is $22.84 and it is expected to pay a dividend of $1.54 next year. The required rate of return is 11.37%. What is the expected growth rate of the dividend?

The correct answer is 4.63%.

Explanation:

According to the scenario, the given data are as follows:

Market price = $22.84

Expected dividend = $1.54

Rate of return = 11.37%

So, we can calculate the growth rate by using following formula:

Required return = (Expected dividend : Current price) + Growth rate

by putting the value we get,

11.37% = ($1.54 : $22.84) + Growth rate

11.37% = 0.0674 + Growth rate

Growth rate = 11.37% - 6.74%

Growth rate = 4.63%