Question

7. The next dividend payment by Firm A will be $2.15 per share. The dividends are expected to grow at a constant rate of 3 percent per year indefinitely. If the stock currently sells for $50 per share, what is the required return

Answer 1

7.3%

Step-by-step explanation:

R = [D0 ( 1 + g) / P0] + g

R = [D1/P0] + g

D1= $2.15, P0 = $50, g = 3%

R = 2.15/50 + 0.03

R = 0.043 + 0.03

R = 0.073

R = 7.3%

The required return is 7.3%