Homework Answers
D1 = $3 per share
g = 4%
price (P) = $32
P = D1 / (Ke - g)
Ke = ($3 / $32) + 0.04
Ke = 0.13375
or Ke = 13.4% (rounded off to '1' decimal
Market rate of return on this stock is 13.4%
Option '3' is correct
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