A stock is selling for $50 in the market

Finance Feb 08, 2021

A stock is selling for $50 in the market. The required rate of return is 10%. The most recent dividend paid is D0=$2.0 and dividends are expected to grow at a constant rate g. What's the expected dividend yield for this stock?

Expert Solution

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

10%= (2* (1+ Growth Rate)/ 50+ Growth Rate

10%=(2+ 2* Growth Rate)/ 50+ Growth Rate

10%= 0.04+ 0.04*Growth Rate+ Growth Rate

Growth Rate= (10%- 0.04)/ (0.04+1)

=0.057692 or 5.77%

Dividend yield= D1/ Current price

=(2* (1+5.77%)/ 50

=0.042308 or 4.23%

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote