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Equity: adding consensus growth rate to dividend yield

Came across a practice problem. The solution provided adds consensus growth rate to dividend yield to arrive returns…..

div yield=3%

consensus growth=5.9%

Ke=3%+5.9%=8.9%

why is it not 3%*(1+5.9%)

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Properly, it should be:

(1 + 3%)(1 + 5.9%)

Adding 3% to 5.9% is an approximation.

Your approach doesn’t get the 5.9% growth in share price.  Check it.

Simplify the complicated side; don't complify the simplicated side.

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perfect..i got it…thank you.

You’re welcome.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/