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Alja [10]
3 years ago
12

The current yield on Google's common stock is 4.8%. The company just paid a $2.10 dividend. The rumor is that the dividend will

be $2.205 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on Alpha's stock? Assume the stock is in equilibrium. Hint: Current yield = Do/Current Price. First, find Po, then find g, and then Rs.
Business
1 answer:
FromTheMoon [43]3 years ago
6 0

Answer:

The correct answer is 10.04%.

Explanation:

According to the scenario, the computation of the given data are as follows:

P_{0} = Dividend paid ÷ Current yield

P_{0} = $2.10 ÷ 0.048 = 43.75

Now we calculate growth.

Growth (g) = (Next year dividend - Current yield ) ÷ Current yield

Growth (g) = ( $2.205 - $2.10 ) ÷ $2.10

g = 0.05

So, we can calculate the rate of return by using following formula:

P_{0} = Next year dividend  ÷ ( r - g)

By putting value, we get

43.75 = $2.205 ÷ ( r - 0.05 )

r = 10.04%

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Answer:

Real Interest Rate = -2.7%

Explanation:

The formula to calculate the Real Interest rate is:

r=(\frac{1+i}{1+p})-1

Here,

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p = Rate of Inflation

We have the value of Nominal Interest Rate. Before using the formula we need to calculate the Rate of Inflation. We have the values of CPI at the beginning and end of the year. From these we can calculate the Inflation Rate. The formula to calculate the inflation rate is:

p=\frac{CPI_{new}-CPI_{old}}{CPI_{old}} \times 100\%

Using the values in this formula, we get:

p=\frac{180-170}{170} \times 100\%\\\\ p=5.88\%

Now we have all the values that we need to use. The values in the formula will be used in decimals, not in percentages. Substituting the values, we get:

r=(\frac{1+0.03}{1+0.588} )-1\\\\ r=-0.027\\\\ r=-2.7\%

Thus, the Real Interest Rate that Juanita earned is -2.7%. This shows that rate of Inflation is more than the Nominal Interest and the value of her savings actually decreased compared to the beginning of the year.

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Answer:

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Accounts Receivable                                               85,400

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