Question: Mulroney Motors' stock has a required return of 10% and its stock trades at $50 per share. The year-end dividend, D1, is expected to be $1.00 per share. After this payment, the dividend is expected to grow by 25% per year for the next three years. That is, D4 = $1.00(1.25)3 = $1.953125. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4? In other words, what is X?
5.47%
6.87%
6.98%
8.00%
8.27%