Question

Cole Company’s stock currently sells for $20 per share. It just paid dividends of $1.00 per share. The dividend is expected to grow at a constant rate of 6% a year. What is the required rate of return?

Answer 1

The required rate of return is 11.3%

Step-by-step explanation:

Required rate of return(ke) =
`D_(0)` x (1+g) /
`P_(0)` + g

= 1 x (1 + 0.06) / 20 + 0.06

= 1 x 0.053 / 20 + 0.06

= 0.113

= 11.3%