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Shares of Pablo Rada, Inc. sell for $28.11 each. The company will pay a $3.00 per...

Shares of Pablo Rada, Inc. sell for $28.11 each. The company will pay a $3.00 per share dividend next year. Investors expect Pablo Rada will increase this dividend by 5.1 percent annually in perpetuity. What is the required annual return on this stock? A) 15.77% B) 21.14% C) 9.37% D) 10.67% E) 6.15%

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Answer #1

Required return=(D1/Current price)+Growth rate\

=(3/28.11)+0.051

which is equal to

=15.77%(Approx).

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