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Homework answers / question archive / XYZ stock currently sells in the market for $8
XYZ stock currently sells in the market for $8.50/share. It just paid a dividend of $0.30/share, and investors expect that the dividend will grow at a constant rate of 4% per year in the future. What rate of return do investors require on this stock?
Answer:
PV = D1 / RR-DGR 8.5 = .312 / x - .04
.312 = 8.5 (x - .04)
.312 = 8.5x - .34
.652 = 8.5x
x = 7.67
