Ivonne has bought shares of RIO, Inc. stock for $25.00 per share. She expects a 1.00...

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Ivonne has bought shares of RIO, Inc. stock for $25.00 per share. She expects a 1.00...

Ivonne has bought shares of RIO, Inc. stock for $25.00 per share. She expects a 1.00 dividend at the end of this year. After 2 years, she expects to receive a dividend of $1.25 and to sell the stock for $28.75. What is Ivonne's required rate of return?

a. 11.6

b. 11.35

please explain with formula if possible

business finance

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Answer 1

Answer #1

Let required return be x%

At this rate;present value of future dividend and value=$25

25=1/1.0x+1.25/1.0x^2+28.75/1.0x^2

Hence x=required return=11.6%(Approx).

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Answer 2

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