Question

You observe a stock price of $18.75. You expect a dividend growth rate of 5%, and the most recent dividend was $1.50. What is the required return

Answer 1

13.4%

Step-by-step explanation:

Stock price is $18.75

Dividend growth rate is 5%

Dividend is $1.50

Therefore the required return can be calculated as follows

r= (1.5×1+0.05)/18.75)+5/100

= 1.5 × 1.05/18.75 + 0.05

= 1.575/18.75 + 0.05

= 0.084 + 0.05

= 0.134×100

= 13.4%