The market price of a stock is $43.33 and it just paid $5.41dividend. The dividend...

The market price of a stock is $43.33 and it just paid $5.41 dividend. The dividend is expected to grow at 3.22% forever. What is the required rate of return for the stock?

Expert Solution

Ans:- As per the dividend discount Model, required return (rs) = D0*(1+g) / P0 + g, where D0 is the last dividend paid, P0 is the market price of a stock and g is the growth rate.

D0= $5.41, P0= $43.33 and g=3.22%.

rs = $5.41*(1+3.22%) / $43.33 + 3.22%

=16.11%.

Therefore, the required rate of return for the stock is approx 16.11%.

jeff jeffy answered 2 years ago

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