The expected return on Natter Corporation’s stock is 18%. The stock’s dividend is expected to grow...

The expected return on Natter Corporation’s stock is 18%. The stock’s dividend is expected to grow at a constant rate of 14%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

a. The stock price is expected to be $57 a share one year from now.

b. The current dividend per share is $4.00.

c.The stock’s dividend yield is 8%.

d.The stock’s dividend yield is 7%.

e.The stock price is expected to be $54 a share one year from now.

Solutions

Expert Solution

Compute the next year dividend, using the equation as shown below:

Dividend = Price*(Expected return – Growth rate)

= $50*(18% - 14%)

= $2

Hence, the dividend after 1 year will be $2.

Compute the stock price after 1 year, using the equation as shown below:

Stock price = {Current price*(1 + Expected return)} – Dividend

= {$50*(1 + 0.18)} - $2

= $59 – $2

= $57

Hence, the stock price after 1 year from now will be $57.

jeff jeffy answered 1 year ago

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