Steady As She Goes, Inc., will pay a year-end dividend of $2.60 per share. Inves
ID: 2705935 • Letter: S
Question
Steady As She Goes, Inc., will pay a year-end dividend of $2.60 per share. Investors expect the dividend to grow at a rate of 6% indefinitely.
If the stock currently sells for $26 per share, what is the expected rate of return on the stock? (Do not round intermediate calculations.)
If the expected rate of return on the stock is 18.5%, what is the stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Steady As She Goes, Inc., will pay a year-end dividend of $2.60 per share. Investors expect the dividend to grow at a rate of 6% indefinitely.
Explanation / Answer
Dividend per share $ 2.60 Constant growth rate 6.00% Current selling price (a) $26.00 Expected rate of return (b) 18.50% by using excel a. Expected rate of return = 16.00% b. Stock price = $20.80