An issue of common stock is selling for $57.20. The year-end dividend is expected to be $2.32, assuming a constant growth rate of 4%. What is the required rate of return? Select one:

a. 10.3%

b. 10.1%

c. 8.1%

d. None of these

Question

Business

Carlos Bowen

30 October, 02:56

An issue of common stock is selling for $57.20. The year-end dividend is expected to be $2.32, assuming a constant growth rate of 4%. What is the required rate of return? Select one:

a. 10.3%

b. 10.1%

c. 8.1%

d. None of these

+4

Answers (1)

Know the Answer?

Myers · Answer 1

8.06%

Explanation:

Use dividend discount model (DDM) to find the required rate of return;

r = (D1/P0) + g

whereby, D1 = Next year's dividend = 2.32

P0 = Current price of the stock = 57.20

g = stock dividend's growth rate = 4% or 0.04 as a decimal

Next, plug in the numbers to the formula;

r = (2.32/57.20) + 0.04

r = 0.0406 + 0.04

r = 0.0806 or 8.06%

Therefore, the required rate of return is 8.06%

An issue of common stock is selling for $57.20. The year-end dividend is expected to be $2.32, assuming a constant growth rate of 4%. What is the required rate of return? Select one:a. 10.3%b. 10.1%c. 8.1%d. None of these

An issue of common stock is selling for $57.20. The year-end dividend is expected to be $2.32, assuming a constant growth rate of 4%. What is the required rate of return? Select one:

a. 10.3%

b. 10.1%

c. 8.1%

d. None of these