CAF-7 · Chapter 9 · Question 13 of 15
What is the formula used to calculate the cost of equity (Ke) using the Dividend Valuation Model with constant growth?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Ke = (D1 / Po) + g
Explanation
The DVM formula rearranged to solve for the cost of equity is Ke = (D1 / Po) + g, where D1 is the expected dividend next year, Po is the current ex-div share price, and g is the constant growth rate.
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