A stock is trading at $80 per share. The stock is expected to have a year-end di

Question

A stock is trading at $80 per share.  The stock is expected to have a year-end dividend of $4 per share (D1 = 44), and it is expected to grow at some constant rate g throughout time.  The stocks required rate of return is 14% (assume the market is in equilibrium with the required return equal to expected return). What is your forecast of g?

A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per share (D1 = 44), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 14% (assume the market is in equilibrium with the required return equal to expected return). What is your forecast of g?

Explanation / Answer

expected rate of return = expected dividend + expected growth rate

Rs = D1/Po + g

0.14 = 4/80 + g

0.14 = 0.05 + g

g = 0.09 = 9%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.