Question

2. Assume that WMT's stock price - 30. It is expected to pay S3 dividend to its investors Assume that its dividend growth rate is 5%. Calculate its dividend yield. A. 4% B. 5% C. 6% D. 7% & 3 Dividend 3. Assume that WMT's stock retum - 10%. It just pa i den to its investors. Assume that its dividend growth rate is 5%. Calculate its stock price. A. 57 B. 60 C. 63 D. 66 $15

Answer 1

ANS - PART(A)

Dividend Yield = Dividend / Price

= 3 / 30

= 0.10 or 10%

PART(B) Price = D₁ / (r - g)

where D_{1 =} expected dividend of next year

r = cost of equity

g= growth

D₁ = D₀ * ( 1+ g)

= 3 (1+ 0.05)

= 3 (1.05)

= 3.15

price = 3.15 / 0.10 - 0.05

= 3.15 / 0.05

=63