A share of stock that pays a current dividend of $2.94. The return on equity is...
A share of stock that pays a current dividend of $2.94. The return on equity is 11.2% and total earnings for the past year is $6.29. Shareholders required rate of return is 12.6%. What is the price of this security?
Homework Answers
Growth rate = Return on Equity*Retention Ratio
= 11.2%*(6.29-2.94)/6.29
= 5.97%
Price = Expected Dividend next year/(Required rate - growth rate)
= 2.94(1+5.97%)/(12.6%-5.97%)
= $46.99
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