Thomas Brothers stock is selling for $6.25 per share and it is expected to pay a
ID: 2812021 • Letter: T
Question
Thomas Brothers stock is selling for $6.25 per share and it is expected to pay a $.50 per share dividend at the end of the year. The dividend of the stock is expected to grow at a constant rate of 7% per year. What is expected rate of return on the stock ? Thomas Brothers stock is selling for $6.25 per share and it is expected to pay a $.50 per share dividend at the end of the year. The dividend of the stock is expected to grow at a constant rate of 7% per year. What is expected rate of return on the stock ?Explanation / Answer
Stock price =dividend/r-g
6.25=.50/(r-0.07)
r-0.07=.50/(6.25)
r-0.07=0.08
r=0.08+0.07=.15=15%