ABC Ltd is expected to grow its annual dividend at a constant rate of 3 percent....
ABC Ltd is expected to grow its annual dividend at a constant rate of 3 percent. If the company’s next dividend is $2.09 and its current price is $19.73, what is the annual required rate of return on this share? (As a percentage to two decimal points; don't show the % sign eg 2.875% would be entered as 2.88.)
Homework Answers
Let Price of Stock = P = 19.73
Dividend Next Period = D1 = 2.09
Growth rate = g = 0.03
Rate of Return = r
Hence, P = D1/(r-g)
=> 19.73 = 2.09/(r-0.03)
=> r = 0.13593
Hence, Rate of Return = 13.59%
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