Question

You’ve collected the following information from your favorite financial website.

52-Week Price
Div PE Close Net
Hi Lo Stock (Div) Yld % Ratio Price Chg
64.60 47.80 Abbott 1.12 1.9 235.6 62.91 −.05
145.94 70.28 Ralph Lauren
2.50 1.8 70.9 139.71 .62
171.13 139.13 IBM 6.30 4.3 23.8 145.39 .19
91.80 71.96 Duke Energy
3.56 4.9 17.6 74.30 .84
113.19 96.20 Disney 1.68 1.7 15.5 ? .10
According to your research, the growth rate in dividends for Abbott Laboratories for the previous 5 years has been negative 11.5 percent. If investors feel this growth rate will continue, what is the required return for the company's stock?

Answer 1

13.48%

Step-by-step explanation:

Calculation for the required return for the company's stock using this formula

Required return = (D1/P0) +g

Let plug in the formula

Required return = [$1.12(1 + 0.115) / $62.91] + 0.115

Required return= [$1.12(1.115) / $62.91] + 0.115

Required return =(1.2488/$62.91)+0.115

Required return=0.019850580194+0.115

Required return = 0.1348 *100

Required return =13.48%

Therefore the required return for the company's stock will be 13.48