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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Avila

Business

14 August, 07:31

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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Answers (1)

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Dereon Stout · Answer 1

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%