Question

the next dividend pwyment by Savitz, inc., will be 1.88 per share. YThe dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells foe 37 per share, what is the required return?

Answer 1

Answer: 9.08%

Explanation:

Using the Gordon Growth model, a required return on a stock can be calculated if the stock price, next dividend and constant growth rate is given.

Stock Price = $\frac{Next Dividend}{Required return - growth rate}$

37 = $\frac{1.88}{r - 0.04}$

37(r - 0.04) = 1.88

r - 0.04 = 1.88/37

r = 1.88/37 + 0.04

r = 9.08%