Question

Holtzman Clothiers's stock currently sells for $19.00 a share. It just paid a dividend of $4.00 a share (i.e., D0 = $4.00). The dividend is expected to grow at a constant rate of 3% a year. What stock price is expected 1 year from now? Round your answer to the nearest cent. $ What is the required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %

Answer 1

Answer and Explanation:

The computation is shown below:

a. The stock price expected one year from now is

= Stock sells per share × (1 + growth rate)

= $19 × (1 + 0.03)

= $19.57

= $20

b. The required rate of return is

= Dividend ÷ current price + growth rate

= ($4 × 1.03) ÷ $19 + 0.03

= 24.68%

The above formulas should be applied to determine each part

And, the same would be relevant