Judy's Boutique just paid an annual dividend of $2.65 on its common stock. The firm increases...

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Judy's Boutique just paid an annual dividend of $2.65 on its common stock. The firm increases...

Judy's Boutique just paid an annual dividend of $2.65 on its common stock. The firm increases its dividend by 3.40 percent annually. What is the rate of return on this stock if the current stock price is $39.64 a share?

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Answer 1

Answer #1


Price =		Dividend/ ke-g
D1= dividend at year 1 =			2.65*103.4%
		=$2.7401
Ke =	Required rate of return
g =	Growth Rate

39.64=		2.7401/Ke-.034
Ke -0.034=		2.7401/39.64
Ke	=	0.06912+0.034

Ke		10.31%

The required rate of return is			10.31%

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Answer 2

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