g The market price of a stock is $48.38 and it just paid $5.51 dividend. The dividend is expected to grow at 2.93% forever. What is the required rate of return for the stock?

r = 0.146527 or 14.6527% rounded off to 14.65%

Explanation:

Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = D0 * (1+g) / (r - g)

Where,

Do is dividend today

g is the growth rate

r is the required rate of return

As we have the values for P0, D0 and g, we can calculate the r using the above formula,

48.38 = 5.51 * (1+0.0293)  /  (r - 0.0293)

48.38 * (r - 0.0293)  =  5.671443

48.38r - 1.417534 = 5.671443

48.38r = 5.671443 + 1.417534

r = 7.088977 / 48.38

r = 0.146527 or 14.6527% rounded off to 14.65%

answer; decentralized;

answer; strategic planning;