Homework Answers
The arithmetic return will be calculated from the dividend in year 2001 and in the year 2010. So, the arithmetic return:
Arithmetic Return = [Div(2010) -Div(2001)]/Div(2001)/9 = (11.41-7.08)/(7.08 x 9) = 6.80%
Similarly, the geometric return will also be calculated by these two years.
Geometric return = [Div(2010)/Div(2001)]^(1/9) -1 = [(11.41)/7.08]^1/9 - 1 = 5.445% =5.45%
The required rate of return will be calculated from the Gordon Growth Formula:
Price = Div /(r-g) = 7.08/(r-0.0545) = 105
r= 12.192% = 12.19%
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