Estimate of the company dividend growth rate

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Reference no: EM131879516

Last year, the stock of IBM traded for (an average of) $100 per share with expected dividends (D1) equal to $6 per share, a required rate of return of 12% and a rate of growth of dividends of 6%. Because of sharp competition in the technology sector, the market revised its estimate of the company’s dividend growth rate, making it only 4%. Quantify the effect of a change in that rate on the stock price.

Reference no: EM131879516

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