Business Cost of capital

If DO = $1.75, g (which is constant) = 3.6%, and PO = $31.00, what is the stock's expected total...

Question:

If DO = $1.75, g (which is constant) = 3.6%, and PO = $31.00, what is the stock's expected total return for the coming year?

a. 9.45%

b. 10.87%

c. 7.75%

d. 9.64%

e. 10.49%

Dividend Growth Model:

The dividend growth model determines the current price of the stock by discounting the future dividends expected from the stock assumed to grow at a constant rate. The dividend growth model can also be used to determine the required return, provided the current price of the stock is given.

Answer and Explanation:

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Correct answer: Option a) 9.45%.

Explanation:

As per the data:

D0 = $1.75
Constant growth rate, g = 3.6%
P0 = $31
Expected return, r =?

Computation...

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Required Rate of Return (RRR): Formula & Calculation

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Chapter 1 / Lesson 29

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