Question

A stock currently pays a $2 dividend. This dividend is expected to grow at 4.5% growth...

A stock currently pays a $2 dividend. This dividend is expected to grow at 4.5% growth for the foreseeable future. The current price is $28. What is the required rate of return on this stock?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Value of Stock =

28 =

28 * Rate of Return - 0.045 * 28 = 2.09

28 * Rate of Return - 1.26 = 2.09

28 * Rate of Return = 2.09 + 1.26

Rate of Return = 3.35 / 28

Rate of Return = 11.96%

NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow...
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow 3% per year, what will the price be if the required return is 9%? 2) A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is 11%, and the expected growth rate is 5%. What is the current stock price? 3) A stock just paid a dividend of $1. The required rate of...
Paper Corporation currently pays a dividend of $2 per share, and this dividend is expected to...
Paper Corporation currently pays a dividend of $2 per share, and this dividend is expected to grow at a 15 percent annual rate for three years, and then at a 10 percent rate for the next three years, after which it is expected to grow at a 5 percent rate forever. What value would you place on the stock if an 18 percent rate of return was required? (make a timeline)
Kai Zen Motors currently pays a dividend of $2 per share, and this dividend is expected...
Kai Zen Motors currently pays a dividend of $2 per share, and this dividend is expected to grow at a 13 percent annual rate for three years, and then at a 11 percent rate for the next two years, after which it is expected to grow at a 6 percent rate forever. What value would you place on the stock if a 16 percent rate of return were required?
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1=$1.50D1=$1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rsrs, is 13%. What is the estimated value per share of Boehm’s stock? (7-4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1=$1.50D1=$1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rsrs, is 13%. What is the estimated value per share of Boehm’s stock? (7-4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each...
If a stock is currently trading for $25, and next year's dividend is expected to be...
If a stock is currently trading for $25, and next year's dividend is expected to be $0.55, what is the implied required rate of return? Assume the dividends are growing at a rate of 2.5% for the foreseeable future.
1. A company pays a $3 dividend on its common stock. This is also expected to...
1. A company pays a $3 dividend on its common stock. This is also expected to be the dividend next year. The second year, the dividend is expected to grow at 10%, then 8% the third year. Thereafter, the dividend will grow at 4% per year. If the required rate of return is 13%, how much would you pay for the stock? 2. A preferred stock pays a $3 dividend each year. The current required rate of return is 15%....
2. A stock is currently selling for $50, pays a dividend of $2.00. Dividends are expected...
2. A stock is currently selling for $50, pays a dividend of $2.00. Dividends are expected to grow at a constant rate of 3% a year. Investors require an 8% rate of return. a. Calculate the intrinsic value (estimated price) for this stock. b. If an analyst uses a 10% rule i. At what price range would this stock be considered to be overvalued? ii. At what price range would this stock be considered to be undervalued? iii. At what...
Which of the following is false? A. For a constant dividend growth stock, the stock price...
Which of the following is false? A. For a constant dividend growth stock, the stock price is expected to grow at a rate equal to the dividend growth rate. B. For the constant dividend growth model, the required return must be larger than the constant dividend growth rate. C. As with bonds, the current price of a stock is the future value of all expected cash flows. D. Financial managers attempt to maximize the value of the firm by increasing...
What are the limitations of the dividend discount model? A stock currently pays a dividend of...
What are the limitations of the dividend discount model? A stock currently pays a dividend of $4 for the year. Expected dividend growth is 20% for the next three years and then growth is expected to revert to 4% thereafter for an indefinite amount of time. The appropriate required rate of return is 10%. What is this stock’s intrinsic value? What is the rate of return on an investment that costs $500 and is sold after 1 year for $560?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT