Question

Toronto Skates Inc.’s common stock is selling at $22.22 per share. Investors expect to receive a dividend of $1.80. The 90-day government T-bill yield is 4.3 percent. What is the dividend growth rate if the risk premium on comparable companies is 6.2 percent?

A) 2.22%

B) 2.40%

C) 3.12%

D) 3.54%

Answer 1

Required return = Risk free rate+Risk Premium 0.043+0.062 0.105 10.50% Growth Rate Required Retun-(Next dividend/Price) 0.105-(1.80/22.22) 0.023992 2.40%|Answer B