Holtzman Clothiers's stock currently sells for $40 a share. It
just paid a dividend of $1 a share (i.e., D0 = $1). The dividend is
expected to grow at a constant rate of 6% a year.
What stock price is expected 1 year from now? Round your answer to
two decimal places.
$ What is the required rate of return? Round your answer to two
decimal places. Do not round your intermediate calculations. %
rate positively ..
We have to first compute the required rate of return using Dividend discount model | ||||
Required rate = | Expected dividend next year/Price today + growth rate | |||
(1*106%)/40+6% | ||||
8.65% | ||||
Therefore required rate = | 8.65% | |||
computation of price after 1 year = | ||||
1*106%*106%/(8.65%-6%) | ||||
42.40 | ||||
Holtzman Clothiers's stock currently sells for $40 a share. It just paid a dividend of $1...
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