MATH SOLVE

4 months ago

Q:
# The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? Select one: a. 12.75 percent b. 13.39 percent c. 9.08 percent d. 15.82 percent e. 10.86 percent

Accepted Solution

A:

Answer: The correct answer is : e. 10.86 percentStep-by-step explanation: The current yield is 1.89% = 1.89 / 100 = 0.0189
The rate of return (R) is:
R = 0.0189 + [ (1.70 - 1.56) / 1.56 ]
R = 0.0189 + 0.0897
R = 0.1086
R = 0.1086 x 100
R = 10.86%
The required rate of return is the minimum return that an investor needs to be calm, it is the amount of profit needed to justify continuing a project or an investment.