The common stock of Phillips Equipment sells for $50 a share

Finance Dec 05, 2020

The common stock of Phillips Equipment sells for $50 a share. The stock paid $2.28 per share last month when the annual dividend was distributed. The firm has established a pattern of increasing its dividends by 5.0 percent annually and expects to continue doing so. What is the market rate of return on this stock? (round your answer to two decimal places)

Expert Solution

Required rate = (Current Dividend * (1 + growth rate) / Current Share price) + growth rate

Required rate = ($2.28 * (1 + 5%)) / $50) + 5%

Required rate = 9.788%

Market rate of return on this stock = 9.788% or 9.79%

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