Suppose a company just paid dividend of $2.19. The dividend is expected to grow at 5.99%...

Suppose a company just paid dividend of $2.19. The dividend is expected to grow at 5.99% each year. If the stock is currently selling for $102.09, what is the required rate of return on the stock?

Expert Solution

Price of the Stock = [ Recent Dividend * ( 1 + Growth Rate ) ] / [ Cost of Equity - Growth Rate ]

$102.09 = [ $2.19 * ( 1.0599 ) ] / [ Cost of Equity - 5.99% ]

Cost of Equity - 5.99% = $2.27366 / $102.09

Cost of Equity = 8.2637%

jeff jeffy answered 2 years ago

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Suppose a company just paid dividend of $2.19. The dividend is expected to grow at 5.99%...

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