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17 January, 04:18

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 g

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  1. 17 January, 04:41
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    r = 8.06%

    Explanation:

    We can use Gordon growth model to calculate the stock price.

    P = D (1) / r - g

    P: stock price (Given: $57.2)

    D (1) : Year-end dividend ($2.32)

    g: Dividend growth rate (4%)

    r: required return (Missing value)

    By inputting the number into the above equation, we have the following:

    57.2 = 2.32 / (r - 0.04)

    --> r = 8.06%
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