Question

A stock just paid a dividend of $4.01 and is expected to maintain a constant dividend growth rate of 4.7 percent indefinitely. If the current stock price is $66, what is the required return on the stock?

Answer 1

11.06%

Explanation:

According to the given situation, the computation of the required return on the stock is shown below:-

Required rate of return = Current Dividend × (1 + growth) ÷ Current Price + Growth

= $4.01 × (1 + 4.7%) ÷ 66 + 4.7%

= 11.06%

Therefore for computing the required rate of return we simply applied the above formula.