You expect Bailey Company's common stock to pay a dividend of $2

Finance Dec 22, 2020

You expect Bailey Company's common stock to pay a dividend of $2.40 one year from now. You can buy the stock now for $52, and you plan to sell the stock at the end of one year. Given the risk of the stock your required rate of return is 10%. For what price would you need to sell your stock in one year in order to earn your required rate of return? $56.88 555.84 55792 55740

Expert Solution

2.4/(0.10 - g) = 52

g = 5.38%

value of the stock in one year = current price * (1 + growth rate)

value of the stock in one year = 52 * (1 + 0.0538) = 54.8

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