Ask Question
10 March, 16:58

Harbour View Company common stock has a $30 par value and is currently selling for $65. Industry analysts are predicting dividends to grow at 7.5 percent per year for the foreseeable future. Recently, Harbour View paid a dividend of $1.70. What is the expected rate of return for the stock

+1
Answers (1)
  1. 10 March, 17:06
    0
    The expected rate of return on this stock is 10.31%

    Explanation:

    The constangt growth model of the DDM approach is used to calculate the price of a share based on the edxpected future dividends from a stock that are growing at a constant rate. The formula for price using constant growth model is,

    P0 = D0 * (1+g) / (r - g)

    Plugging in the values,

    65 = 1.7 * (1+0.075) / (r - 0.075)

    65 * (r - 0.075) = 1.8275

    65r - 4.875 = 1.8275

    65r = 1.8275 + 4.875

    r = 6.7025 / 65

    r = 10.31% or 0.1031
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Harbour View Company common stock has a $30 par value and is currently selling for $65. Industry analysts are predicting dividends to grow ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers