Equity TT - Green Snake, can anyone enlighten me on the implied LT div growth rate?

CFA Level II Equities
#1

Hi everyone. I am kinda stuck on number 4 on the Equtiy TT(Green Snakes). Can anyone help me?

I simply cannot understand how the answer equation is derived to be ’ g = (r - g )/1 + d '.

Maybe my algorithm is wrong but my understanding is…

  1. V0 = D0(1+g)/(r-g)

  2. V0(r-g) = D0(1+g)

  3. (r-g) = D0(1+g)/Vo

  4. g = r - Do(1+g)/Vo

Thanks for your kind attention!

#2

I have the same question as well. I had the same formula as yours, and had 8.0% instead. Anyone? Bump!

#3

I have the same question as well. I had the same formula as yours, and had 8.0% instead. Anyone? Bump!

#4

’g = (r - g )/(1 + d)‘ is a typing error, it should be g = (r - d)/(1+d) with d being the dividend yield. Also note that Bradley suggests using industry’s d and r.

by using algebra, you can prove that indeed g = (r-d)/(1+d)

use the alternative explanation where they plug in numbers instead of using letters as notations if it confuses you.

#5

Thanks Edbert. You’re a life saver!

#6

Thanks! Clear now :slight_smile: