Question

Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?

Answer 1

Answer:

$6.25 (rounded off)

Explanation:

In this case we first have to find the most recent dividend and then multiply is by (1+Growth rate) in order to find year end dividend. The price of the stock currently is $57.50 and the required rate of return is 10.25% so we can assume that the most recent dividend of the stock was 10.25% of 57.5

Recent dividend = 57.50 *0.1025= 5.89

Year end dividend = Recent dividend *(1 +growth rate)

                            =5.89*(1+0.06)

                             = 6.247