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GGM model

Hi there,

Suppose a company just paid dividends and its stock price now is 20 dollars. Company is going to pay dividends every year and the next dividend would be 90 cents and would grow at 2% rate after. Current risk premium is 6% and the risk-free rate is 4%. What is the implied beta of equity of this company? 

This is actually a question from my university. I thought it’s just a simple question about GGM model. But the solution is:

re = d1/p0 + g = 0.95/20 + 2% = 6.75%

I am confused about where this 0.95 comes from? The question says the NEXT dividend is 90 cents and the company just paid dividends so I used 0.9 for d1.

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There’s something missing or there’s a typo. If the next dividend is 90c, then d1 = 90c, just like you wrote. 

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