Question

A stock just paid an annual dividend of $1.34 which increases by 2 percent per year. How do you compute the required return if the stock is selling for $43 a share

Answer 1

5

Step-by-step explanation:

Annual dividend is 1.34

It increases by 2% every year

= 2/100

= 0.02

The stock is sold at $43

Therefore the required return can be calculated as follows

= 1.34/1.02/43)+0.02

= 1.313/43 + 0.02

= 0.03+0.02

= 0.05×100

= 5

Hence tbs required rate of return is 5