Question

Holtzman Clothiers's stock currently sells for $33.00 a share. It just paid a dividend of $2.00 a share (i.e., D0 = $2.00). The dividend is expected to grow at a constant rate of 10% a year.

What stock price is expected 1 year from now? Round your answer to two decimal places.

What is the required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Expecteed Dividend = 2.00+10% = 2.20
Dividend yield = Expected dividend / Stock price *100
		2.20 / 33 *100 = 6.67%
Required rate of return = Dividend yield + growth rrate
		6.67% + 10% = 16.67%
Expected dividend for Year-2 = 2.20+10% =2.42
Stock price at the end of Year- 1 = Expecteed dividend of Year-2 / dividend yield
			2.42 / 6.67% = 36.28 per share