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    dc21964's Avatar
    dc21964 Posts: 1, Reputation: 1
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    #1

    Oct 26, 2009, 11:51 AM
    Rate of return on stock dividends
    A firm pays $4.90 dividend at end of year 1 (d1) stock price is $70 and constant growth rate of 6%. Computer the rate of return (Ke)

    Am I correct in assuming:

    Po= D1(1+G)/ (1+ Ke) change KE and PO

    Ke= D1(1+G)/(1+Ke)

    Ke= $4.90(1.06)/ 1+$70

    Ke= 7.31%

    Thanks
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Oct 26, 2009, 01:21 PM
    Your given info sets up this way...



    Now I'll let you take the wheel, skipper. Remember that it's easy to plug any proposed answer you come up with back into the above growth-model equation, to make sure it checks out.
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