A company’s stock has an expected dividend of Rs. 5 next year and is priced at Rs. 100. If the required rate of return is 10%, what is the expected growth rate of the stock?

Practice question from NISM XV Mock Test 5 — bank. The correct answer is highlighted below with a full explanation.

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Why this is the answer

Using the Gordon Growth Model: P = D / (r – g). Substituting: 100 = 5 / (0.10 – g) → 0.10 – g = 0.05 → g = 0.05 or 5%.

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