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25 June, 07:38

Macrosoft paid a dividend of $8 per share today (i. e., D0 = $8). The dividends are anticipated to maintain a 8 percent growth rate per year forever. If the Macrosoft stock currently sells for $80, what is the required rate of return on the Macrosoft stock?

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  1. 25 June, 11:00
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    18%

    Explanation:

    We can use the Gordon growth model formula to determine the required rate of return:

    stock price = dividend / (required rate of return - growth rate)

    required rate of return - growth rate = dividend / stock price

    required rate of return = (dividend / stock price) + growth rate

    required rate of return = ($8 / $80) + 8% = 10% + 8% = 18%
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