Question

The market price of a stock is $53.92 and it just paid $5.82

dividend. The dividend is expected to grow at 4.79% forever. What
is the required rate of return for the stock?

Answer 1

The required rate of return for the stock, assuming dividends grow indefinitely at a rate of 4.79%, and given the current stock price and recent dividend, is 15.78%.

Step-by-step explanation:

The required rate of return for the stock can be calculated using the Gordon Growth Model (also known as the Dividend Discount Model). The model assumes that a company's dividends will continue to grow at a consistent rate indefinitely. The formula for the required rate of return is: Required Rate of Return = (Dividend Payment / Current Stock Price) + Dividend Growth Rate. Plugging the numbers from the question, we can calculate it as follows: Required Rate of Return = ($5.82 / $53.92) + 4.79%, which simplifies to Required Rate of Return = 0.1079 + 0.0479, equating to a required rate of return of 15.78%.