Question

The next dividend payment by Halestorm, Inc., will be $1.72 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $33 per share, what is the required return?

A) 9.21%
B) 10.21%
C) 8.21%
D) 7.21%

Answer 1

The required return for Halestorm, Inc. stock is 9.2%.

Step-by-step explanation:

To calculate the required return, we can use the dividend growth model. The formula for the required return is:

Required Return = (Dividend / Stock Price) + Dividend Growth Rate

Given that the dividend is $1.72 and the dividend growth rate is 4%, we can plug in these values to calculate the required return.

Required Return = ($1.72 / $33) + 0.04 = 0.052 + 0.04 = 0.092 or 9.2%