Royal Bank of Canada common shares currently trade for $88.03. The most recent earnings were $8.28...
Royal Bank of Canada common shares currently trade for $88.03. The most recent earnings were $8.28 per share. If investors require a return of 12%, how much of RBC’s price is from growth opportunity?
Select one:
a. $69.03
b. $79.75
c. $19.03
d. $73.35
e. None of the above.
Homework Answers
Answer is $19.03:
Current Price = $88.03
Recent Earnings = $8.28
Required Return = 12%
Price without Growth = Recent Earnings / Required Return
Price without Growth = $8.28 / 0.12
Price without Growth = $69.00
Price from Growth Opportunity = Current Price - Price without
Growth
Price from Growth Opportunity = $88.03 - $69.00
Price from Growth Opportunity = $19.03
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