Return on Common Stock
You buy a share of The Ludwig Corporation stock for $20.00. You expect it to pay dividends of $1.10, $1.17, and $1.2445 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $31.71 at the end of 3 years.
a. Calculate the growth rate in dividends. Round your answer to two decimal places.
b. Calculate the expected dividend yield. Round your answer to two decimal places.
c. Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock's expected total rate of return (assume market is in equilibrium with the required rate of return equal to the expected return)? Do not round intermediate calculations. Round your answer to two decimal places.
Constant Growth Stock Valuation
Investors require a 18% rate of return on Brooks Sisters' stock (rs = 18%).
What would the value of Brooks' stock be if the previous dividend was D0 = $1.5 and if investors expect dividends to grow at a constant compound annual rate of (1) - 7%, (2) 0%, (3) 7%, or (4) 11%? Round your answers to the nearest cent.
1. $
2. $
3. $
4. $