Answer:
Explanation:
Dividend = 4.17$
growth rate= 4.5%
Current stock price = 70$
Required return = ?
required return = dividend next year / current stock price + growth rate
Required Return = 4.17 /70+4.5%
= 1.323%
Answer:
The required return on the stock is 10.73%
Explanation:
The required return can deduced from the stock price formula given below:
Price=Do*(1+g)/r-g
Price is $70
Do is the dividend just paid is $4.17
g is the growth rate of dividend at 4.5%
r is the required return which is the unknown
$70=$4.17*(1+0.045)/r-0.045
$70=$4.17*(1.045)/r-0.045
by cross-multiplication the equation becomes
$70*(r-0.045)=$4.17*1.045
r-0.045=$4.17*1.045/70
r=($4.17*1.045/70)+0.045
r=10.73%
The required return on this investment is 10.73%
