Current price of share of a company is ₹60 and dividend per share is ₹4. If its capitalisation rate is 12%, what is the dividend growth rate?

Using Gordon's Growth Model: P 0 = D 1 / (k e - g) Where: P 0 = Current price of share = ₹60 D 0 = Dividend per share (current) = ₹4 D 1 = Expected dividend next year = D 0 (1+g) = ₹4(1+g) k e = Capitalisation rate (required rate of return) = 12% = 0.12 g = Dividend growth rate (to be found) ₹60 = ₹4(1+g) / (0.12 - g) ₹60 * (0.12 - g) = ₹4 + ₹4g 7.2 - 60g = 4 + 4g 7.2 - 4 = 4g + 60g 3.2 = 64g g = 3.2 / 64 g = 0.05 or 5% The dividend growth rate is 5%.