Jand, Inc., currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of Jand’s shares

Jand, Inc., currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of Jand’s shares based on the constant-growth dividend discount model is $32.03, what is the required rate of return? (Do not round intermediate calculations. Round your answer to the nearest whole percent.)

Answer

9% Explanation: The required rate of return is basically how much an investor is expecting in return for his investment. The formula for price of stock is = P = Do(1+g)/rs – g P = price of stock Do = dividend g = growth rs = required rate of return We need to find out rs, therefore, 32.03 = 1.22(1+5%)/rs- 5% = 9%

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