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 1 year ago

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