Answer:
Cost of equity = 11%
Explanation:
Cost of equity can be ascertained using the dividend valuation model. The model states that the price of a stock is the present value of future dividends discounted at the required rate of return.
Cost of equity (Ke) =( Do( 1+g)/P ) + g
g- growth rate in dividend, P- price of the stock
g - 9%, P - 100, D(1+g)= 2
D(1+g) represents the dividend payable in year 1 and is already given as 2
Cost of equity = (2/100 + 0.09)× 100
Cost of equity = 11%
