Answer:
15%
Explanation:
we can use the Gordon growth model to determine the required rate of return:
current stock price = future dividend / (required rate of return - growth rate)
$17.50 = $2.10 / (required rate of return - 3%)
required rate of return - 3% = $2.10 / $17.50 = 0.12 = 12%
required rate of return = 12% + 3% = 15%
Answer:
Explanation:
Given:
D1 = $2.10
Po = $17.50
g = 3 %
Po = D1/(r - g)
Where,
Po = current stock price
D1 = dividend paid per year
r = rate of returns
= cost of equity
g = rate of growth of dividend
r = (D1 + (g × Po))/Po
Inputting their values,
r = (2.10 + (0.03 × 17.5))/17.5
= 0.15
= 15%
