A firm has a return on equity (ROE) of 15% and a dividend payout rate of 80%. If last year’s dividend was $0.80 and the required return on equity is 10%, what is the firm’s estimated dividend growth rate and what is the current stock price Dividend growth rateStock price（） ①A. 12.00% $ 11.77②B. 3.00% $ 9.96③C. 3.00% $ 11.77
A．①
B．②
C．③
参考答案：C
解析：
The expected growth rate of dividends is the retention rate (RR) times the return on the equity portion of new investments (ROE), g=(RR)(ROE). The retention rate is 1 minus the payout rate. RR=1-0.80=0.20. g=0.20×0.15=3.00%. The value of the stock will be the dividend paid next year divided by the required rate of return minus the growth rate. Next year’s dividend is $ 0.80×1.03=$ 0. 824. So the value is 0.824/ (0.10-0.03)=0.824/0.07 =$11.77.