Janis Corp just issued an annual dividend of $2.50 per share. The firm

Janis Corp just issued an annual dividend of $2.50 per share. The firm anticipates the growth rate in dividends will be 3% annually for the foreseeable future.

If the current price is $61 per share, what is the required rate of return for the firm’s equity?
A) 7.10%
B) 8.36%
C) 7.22%
D) 6.95%

ANSWER

C
Explanation: C) r = D1/P + g = 2.5(1.03)/61 + 0.03 = 7.22%.