Question

Please check and explain

Question 4 1 pts Harbour View Company common stock has a $30 par value and is currently selling for $65. Industry analysts are predicting dividends to grow at 7.5 percent per year for the foreseeable future. Recently, Harbour View paid a dividend of $1.70. What is the expected rate of return for the stock?! 10.3% 7.5% 18.8% O 10.1% 13.6%

Answer 1

current price = current dividend(1 + growth rate) / K - g

where K = expected return

g = growth rate

we already know current price = 65

current dividend = 1.70

growth rate = 7.5%

so , 65 = 1.70(1 + 7.5%) / K - 7.5%

65K - 4.875 = 1.8275

so K = 6.7025 / 65

= 0.103 or 10.3%

first option is correct one