Brothers Inc. is expected to maintain a constant 3 percent growth rate in its dividends, indefinitely. The company has a dividend yield of 5.7 percent. What is the expected return on the company's stock?(Answer as a percentage (without the "%" sign) and with two decimal places. For example, if the return is 3.21%, your answer should be 3.21.)
Question
Brothers Inc. is expected to maintain a constant 3 percent growth rate in its dividends, indefinitely. The company has a dividend yield of 5.7 percent. What is the expected return on the company's stock?(Answer as a percentage (without the "%" sign) and with two decimal places. For example, if the return is 3.21%, your answer should be 3.21.)
Solution 1
The expected return on a company's stock can be calculated using the Gordon Growth Model, which is a model used to determine the intrinsic value of a stock, excluding external factors such as market conditions. The model assumes that dividends grow at a constant rate indefinitely.
The formula for the Gordon Growth Model is:
Expected Return = Dividend Yield + Dividend Growth Rate
Given in the problem, we have:
Dividend Yield = 5.7% = 5.7 (in decimal form) Dividend Growth Rate = 3% = 3 (in decimal form)
Substituting these values into the formula, we get:
Expected Return = 5.7 + 3 = 8.7
So, the expected return on the company's stock is 8.7%.
Solution 2
The expected return on a company's stock can be calculated using the Gordon Growth Model, which is a model used to determine the intrinsic value of a stock, excluding external factors such as market conditions.
The formula for the Gordon Growth Model is:
Expected Return = Dividend Yield + Growth Rate
Given in the problem, we have:
Dividend Yield = 5.7% Growth Rate = 3%
Substituting these values into the formula, we get:
Expected Return = 5.7 + 3 = 8.7
So, the expected return on the company's stock is 8.7%.
Solution 3
The expected return on a company's stock can be calculated using the Gordon Growth Model, which is a model used to determine the intrinsic value of a stock, excluding external factors such as market conditions.
The formula for the Gordon Growth Model is:
Expected Return = Dividend Yield + Growth Rate
Given in the problem, we have:
Dividend Yield = 5.7% Growth Rate = 3%
Substituting these values into the formula, we get:
Expected Return = 5.7 + 3 = 8.7
So, the expected return on the company's stock is 8.7%.
Solution 4
The expected return on a company's stock can be calculated using the Gordon Growth Model, which is a model used to determine the intrinsic value of a stock, excluding external factors such as market conditions.
The formula for the Gordon Growth Model is:
Expected Return = Dividend Yield + Growth Rate
Given in the problem, we have:
Dividend Yield = 5.7% = 5.7 (in decimal form) Growth Rate = 3% = 3 (in decimal form)
Substituting these values into the formula, we get:
Expected Return = 5.7 + 3 = 8.7
So, the expected return on the company's stock is 8.7%.
Solution 5
The expected return on a company's stock can be calculated using the Gordon Growth Model, which is a model used to determine the intrinsic value of a stock, excluding external factors such as market conditions.
The formula for the Gordon Growth Model is:
Expected Return = Dividend Yield + Growth Rate
Given in the problem, we have:
Dividend Yield = 5.7% Growth Rate = 3%
Substituting these values into the formula, we get:
Expected Return = 5.7 + 3 = 8.7
So, the expected return on the company's stock is 8.7%.
Similar Questions
A company’s dividend is expected to grow at 20% for the next six years. After that, the growth is expected to be 3% forever. If the required return is 10%, what is the value of the stock at time 6? The dividend just paid was $1
A stock just paid a dividend of $4.25 and is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely. If the current stock price is $72, what is the required return on the stock?
Silicon Ltd. has a current stock price of $58.2 per share, is expected to pay an annual dividend of $2.5 in one year, and its expected price right after paying that dividend is $58. What is the expected dividend yield for Silicon Ltd.? (State your answer in percentage terms and round to 2 decimal places, e.g. put 4.59 if your answer is 0.04586384)
An issue of common stock currently sells for $40.00 per share, has an expected dividend to be paid at the end of the year of $2.00 per share, and has an expected growth rate to infinity of 5% per year. The expected rate of return on this security is A. 5%. B. 10.25%. C. 13.11%. D. 10%.
The Co. just paid a dividend of $1 per share. Analysts expect its dividend to grow at 25 percent per year for the next three years and then 5 percent per year thereafter. If the required rate of return on the stock is 18 percent, what is the current value of the stock?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.