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19 September, 11:45

Jand, Inc., currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of Jand's shares based on the constant-growth dividend discount model is $32.03, what is the required rate of return? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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  1. 19 September, 14:13
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    Answer: 9%

    Explanation:

    The required rate of return is basically how much an investor is expecting in return for his investment.

    The formula for price of stock is =

    P = Do (1+g) / rs - g

    P = price of stock

    Do = dividend

    g = growth

    rs = required rate of return

    We need to find out rs, therefore,

    32.03 = 1.22 (1+5%) / rs - 5% = 9%
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