XYZ company’s stock has a dividend yield of 4%. Employing the Gordon Growth Model, what is the stock’s implied growth rate if the relevant interest rate is 3% with a 8% risk premium?
Beta is not provided. The answer should be 7%.
Any clue how to derive the answer of 7%?
Implied growth rate=required return-dividend yield=interest rate+risk premium-dividendyield=3%+8%-4%=7%
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