Question #67
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 26
Status: Unattempted
Question
Jand, Inc., currently pays a dividend of $1.22, which is expected to grow at 5%. If the current value of Jand's shares based on the Gordon model is $32.03, what is the required rate of return?
Answer Choices:
A. 9%
B. 7%
C. 8%
Explanation
The required return is 9%: r = [$1.22(1 + 0.05) / $32.03] + 0.05 = 0.09 or 9%.