Question

In: Finance

(Stocks) A stock with the required rate of return of 13.54% is expected to pay a...

(Stocks) A stock with the required rate of return of 13.54% is expected to pay a $0.81 dividend over the next year. The dividends are expected to grow at a constant rate forever. The intrinsic value of the stock is $22.07 per share. What is the constant growth rate (in %, to the nearest 0.01%)? E.g., if your answer is 4.236%, record it as 4.24.   

Solutions

Expert Solution

Required return=(D1/Current price)+Growth rate

0.1354=(0.81/22.07)+Growth rate

Growth rate=0.1354-(0.81/22.07)

which is equal to

=9.87%(Approx)

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

(Stocks) A stock with the required rate of return of 13.68% is expected to pay a...
(Stocks) A stock with the required rate of return of 13.68% is expected to pay a $1.08 dividend over the next year. The dividends are expected to grow at a constant rate forever. The intrinsic value of the stock is $21.65 per share. What is the constant growth rate (in %, to the nearest 0.01%)? E.g., if your answer is 4.236%, record it as 4.24.
What is the required rate of return on a share that is expected to pay a...
What is the required rate of return on a share that is expected to pay a constant dividend of $6.00 every year in perpetuity and is priced at $40.00?
What is the difference between the expected rate of return and the required rate of return?...
What is the difference between the expected rate of return and the required rate of return? What does it mean if they are different for a particular asset at a particular point in time?
Explain the difference between required rate of return and expected rate of return. If they are...
Explain the difference between required rate of return and expected rate of return. If they are different at a specific point in time, what does it mean? 2. What is the difference between an expected return and a total holding period return? 3. How does investing in more than one asset reduce risk through diversification?
What is the difference between the expected rate of return and the required rate of return?...
What is the difference between the expected rate of return and the required rate of return? What does it mean if they are different for a particular asset at a particular point in time? please a new and different answer. Thank you
BETA AND REQUIRED RATE OF RETURN a. A stock has a required return of 9%; the...
BETA AND REQUIRED RATE OF RETURN a. A stock has a required return of 9%; the risk-free rate is 5%; and the market risk premium is 3%. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 10%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. If the stock's beta is equal to 1.0, then the change in...
Explain the differences between expected return and required rate of return?
Explain the differences between expected return and required rate of return?
3a. Why are expected rate of return and required rate of return on an asset synonymous?...
3a. Why are expected rate of return and required rate of return on an asset synonymous? When can they be different? 3b. What is the possible range of values for Beta?   Please provide detailed answers.
1. Explain the difference between the required rate of return and the expected rate of return....
1. Explain the difference between the required rate of return and the expected rate of return. If they are different at a specific point in time, what does it mean? 2. What is the difference between an expected return and a total holding period return? 3. How does investing in more than one asset reduce risk through diversification?
1. Explain the difference between required rate of return and expected rate of return. If they...
1. Explain the difference between required rate of return and expected rate of return. If they are different at a specific point in time, what does it mean? 2. What is the difference between an expected return and a total holding period return? 3. How does investing in more than one asset reduce risk through diversification?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT