Question

Cole Company’s stock currently sells for $20 per share. It just paid dividends of $1.00 per share. The dividend is expected to grow at a constant rate of 6% a year. What is the required rate of return?

Answer 1

Answer:

The required rate of return is 11.3%

Explanation:

Required rate of return(ke) = $D_{0}$ x (1+g) / $P_{0}$ + g

                                            = 1 x (1 + 0.06) / 20 + 0.06

                                            = 1 x 0.053 / 20 + 0.06

                                             = 0.113

                                              = 11.3%