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Can you please show steps and formulas 6) A company recently paid out a $4 per...

Can you please show steps and formulas

6) A company recently paid out a $4 per share dividend on their stock. Dividends are projected to grow at a constant rate of 5% into the future, and the required return on investment is 8%. If we buy the stock today and hold it for one year, what is our holding period return for that one year?

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Answer #1

Current share price = D1 / (required rate - growth rate)

Current share price = (4 * 1.05) / 0.08 - 0.05

Current share price = 4.2 / 0.03

Current share price = $140

Price after 1 year = Present value ( 1 + g)n

Price after 1 year = 140 * (1 + 0.05)

Price after 1 year = 147

Holding period return = [(Ending value + dividends - beginning value) / beginning value] * 100

Holding period return = [(147 + 4.2 - 140) / 140] * 100

Holding period return = 0.08 * 100

Holding period return = 8%

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