What is the constant growth rate for a stock with a current price of $180.00, an expected dividend payment of $8.00 per share in next year, and a required return of 11.54%?

The constant growth rate (also known as the Gordon growth rate or dividend growth rate) for a stock can be found using the **Dividend Discount Model (DDM)** with constant growth. The formula is:

\[
r = \frac{D_1}{P_0} + g
\]

Where:
- $ r $ is the required rate of return (11.54% in this case),
- $ D_1 $ is the expected dividend in the next year ($8.00),
- $ P_0 $ is the current stock price ($180.00),
- $ g $ is the growth rate, which we need to find.

Rearranging the formula to solve for $ g $:

\[
g = r - \frac{D_1}{P_0}
\]

Substitute the given values:

\[
g = 0.1154 - \frac{8}{180}
\]
\[
g = 0.1154 - 0.0444
\]
\[
g = 0.071
\]

So, the **constant growth rate** is **7.1%**.

Would you like further details or have any questions? Here are 5 related questions you might find helpful:

1. How does the required rate of return affect the stock price?
2. What happens to the growth rate if the expected dividend increases?
3. Can the growth rate be negative in some scenarios?
4. How does the Dividend Discount Model relate to the intrinsic value of a stock?
5. What assumptions does the Gordon Growth Model make?

**Tip**: To estimate growth rates accurately, companies often analyze both historical growth and future projections based on market trends.

Discover how to calculate the constant growth rate for a stock priced at $180.00, with an expected $8.00 dividend and a required return of 11.54%, using the Dividend Discount Model. This detailed guide is suitable for finance students at the undergraduate level.

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