Last year, when the stock of Shipping Enterprises was sellingfor $48 a

QUESTION

Last year, when the stock of Shipping Enterprises was sellingfor $48 a share the dividend yield was 4.5 percent. Today, thestock is selling for $46 a share. What is the current requiredreturn on this stock if the company maintains a constant dividendgrowth rate of 3 percent?
Last years selling price = $48 Dividend yield =4.5% Dividend yield = Dividend pershare / Net sale value 4.5% = Dividend per share /$48 Dividend per share =$2.16 Current year share selling price = $46

h rate (g)= 3% Current year dividend =$2.16*(1 0.03) = $2.2248 Require return =(Dividend /Net sale value) g = ($2.2248 / $46) 0.03 = 7.84%

ANSWER:

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