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The market price of a stock is $32.19 and it is expected to pay a $4.07...

The market price of a stock is $32.19 and it is expected to pay a $4.07 dividend next year. The dividend is expected to grow at 2.95% forever. What is the required rate of return for the stock?

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Expert Solution

Ans 15.59%

P0 = Price of Share
D1 = Current Dividend
Ke = Cost of Equity
g = growth rate
P0 = D1 / (Ke - g)
32.19 = 4.07 / (Ke - 2.95%)
Ke - 2.95% = 4.07 / 32.19
Ke - 2.95% = 12.64%
Ke = 12.64% + 2.95%
Ke = 15.59%

jeff jeffy answered 3 years ago
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