Ask Question
9 May, 10:30

Consider a stock that pays a dividend of $20. Dividends areexpected to grow at 7% per year and the stock is currently priced at $713. i) What must the expected return on the stock be for investors to purchase it at thisprice?

+3
Answers (1)
  1. 9 May, 10:59
    0
    Expected return on stock is 9.81%

    Explanation:

    We use Dividend Growth method to calculate the stock price based on the dividend paid, its growth rate and required rate of return.

    The formula for the stock price is as follows

    Price of share = D0 / (Rate of return - Growth rate)

    $713 = $20 / (rate of return - 7%)

    Rate of return - 7% = $20 / $713

    Rate of return - 7% = 2.81%

    Rate of return = 2.81% + 7%

    Rate of return = 9.81%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Consider a stock that pays a dividend of $20. Dividends areexpected to grow at 7% per year and the stock is currently priced at $713. i) ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers