Question

river co. just paid a dividend of $2 per share out of earnings of $4 per share. if its book value per share is $25 and its stock is currently selling for $40 per share, calculate the required rate of return on the stock. group of answer choices 15.2 percent 7.2 percent 14.7 percent 13.4 percent

Answer 1

To calculate the required rate of return on the stock, use the dividend growth model. The required rate of return is 5%. C .15.2 percent

The formula for the required rate of return is:

Rate of Return = Dividend / Stock Price + Dividend Growth Rate

In this case, the dividend is $2 per share, the stock price is $40 per share, and the earnings per share is $4.

First, we calculate the dividend growth rate:

Growth Rate = Earnings per Share / Book Value per Share

Growth Rate = 4 / 25 = 0.16 or 16%

Next, we plug in the values into the rate of return formula:

Rate of Return = 2 / 40 + 0.16 = 0.05 or 5%

Therefore, the required rate of return on the stock is 5%.

question:

River Co. Just paid a dividend of $2 per share out of earnings of $4 per share. If its book value per share is $25 and its stock is currently selling for $40 per share, calculate the required rate of return on the stock

Multiple Choice

12 percent

147 percent

15.2 percent

13.4 percentTo calculate the required rate of return on the stock, use the dividend growth model. The required rate of return is 5%. C .15.2 percent