Suppose Potter Ltd. just issued a dividend of $1.82 per share on its common stock. The company paid dividends of $1.36, $1.46, $1.53, and $1.68 per share in the last four years, respectively. If the stock currently sells for $55, what is your best estimate of the company’s cost of equity capital using arithmetic and geometric growth rates?
A. 3.25% (Arithmetic) and 2.63% (Geometric)
B. 3.75% (Arithmetic) and 2.87% (Geometric)
C. 4.15% (Arithmetic) and 3.12% (Geometric)
D. 4.50% (Arithmetic) and 3.34% (Geometric)