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  • Dividend of $1.00 A Share (I.e., D $1.00) - The Dividend Is Expected To Grow at A Constant Rate of 6 Percent A Year

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    henry john

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    Dividend of $1.00 A Share (I.e., D $1.00) - The Dividend Is Expected To Grow at A Constant Rate of 6 Percent A Year

    Uploaded by

    Trang Henry
    no smoking

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
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    of 1

    HARRISON CLOTHIERS stock currently sells for $20 a share. The stock just paid a dividend of $1.

    00 a share (i.e., D0=$1.00). The dividend is expected to grow at a constant rate of 6 percent a year. WHAT STOCK PRICE IS EXPECTED 1 YEAR FROM NOW? WHAT IS THE REQUIRED RATE OF RETURN ON THE COMPANYS STOCK? P0 = $20 D0 = $1.00 g = 6%

    P1 = ? ks

    P1

    = P0 ( 1 + g )

    = $20 ( 1.06 )

    = $21.20 ks = D1 +g P0 = $1.00 ( 1.06 ) + 0.06 $20

    = 11.3%

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