Question

A stock just paid a dividend of $4.65 and is expected to maintain a constant dividend growth rate of 4.7 percent indefinitely. If the current stock price is $82, what is the required return on the stock?

Answer 1

price of the stock = dividend just paid *(1+growth rate) / (required rate - growth rate)

=>82 = 4.65*(1.047) / (x-0.047)

=>82 = 4.86855 / (x-0.047)

=>82*(x-0.047)=>4.86855

=>82x=8.72255

=>x = 0.1064

=>10.64%.