In the following question, the correct answer is r = D/P = 8.8%. My question is why the growth rate of 3% is not included in calculating the answer to obtain 5.8%? Similarly, there are several DDM and GG calculations were the growth rate is excluded. Can someone explain when to and when not to include g in the formula (P=D/r-g). Thanks.
Q: Preferred stock is issued at $45 per share with a dividend of $5.25. The same share price is now $60. Earnings are growing at 3%. The cost of preferred stock is closts to: A 5.8%, B 11.7%, C 8.8%.
Thanks!