Assignment on equity pricing | Business & Finance homework help
The company’s expected Growth Rate for Earnings & Dividends can be determined by taking into consideration the market expectations of companies similar to XYZ which is a rate of return of 13% per year. It can be translated as an estimated growth rate of 1.1% in dividends and earnings.
This means that investors anticipate that, on average, XYZ will increase their earnings and dividend payments by 1.1% each year over the long-term – assuming current conditions remain stable (i.e., no major changes in economic/industry outlook etc.).
This figure should not be taken as an indication of what the investors expect from these companies. It may also reflect reality due to external shocks, unforeseen events, etc.
Therefore it can be concluded that based on current market conditions, XYZ’s expected Growth Rate for Earnings & Dividends is approximately 1.1%. This is not a prediction or guarantee, but an indication of the investor’s sentiment toward such stocks right now.