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    tcharlan19's Avatar
    tcharlan19 Posts: 5, Reputation: 1
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    #1

    Apr 11, 2010, 07:59 AM
    Butler Corp paid a dividend today of $3.50 per share. The dividend is expected to gro
    Butler Corp. paid a dividend today of $3.50 per share. The dividend is expected to grow at a constant rate of 8% per year. If Butler Corp stock is selling for $75.60 per share, the stockholders expected rate of return is?
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Apr 11, 2010, 02:52 PM
    A 'constant dividend growth' scenario can be priced with the model...



    where is the price of the stock today; is the dividend expected one year hence; and r and g denote the appropriate discount rate and the expected constant growth rate, respectively.

    In your case you're given the current price, and you need to find r. Note too that you're given today's dividend; the numerator of the model needs the dividend expected one year out (i.e. after one year's growth).

    Go get 'em.
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