You believe that a corporation's dividends will grow 5 percent on average into the future. The corporation just paid a dividend of $5 per share and its stock has a current price of $75. Using the Gordon growth model, (a) what is the implied required rate of return for the stock?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter5: Business And Economic Forecasting
Section: Chapter Questions
Problem 2E
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You believe that a corporation's dividends will
grow 5 percent on average into the future.
The corporation just paid a dividend of $5 per
share and its stock has a current price of $75.
Using the Gordon growth model,
(a) what is the implied required rate of
return for the stock?
Transcribed Image Text:You believe that a corporation's dividends will grow 5 percent on average into the future. The corporation just paid a dividend of $5 per share and its stock has a current price of $75. Using the Gordon growth model, (a) what is the implied required rate of return for the stock?
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