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"Expected Return Ecolap Inc. (ECL) recently paid a $0.46 dividend. The dividend is expected to grow at a 14.5 percent rate. At a current stock price of $44.12, what is the return shareholders are expecting

Respuesta :

Edufirst

Answer:

  • 15.7%

Explanation:

The price of a stock can be modeled by the present value of the stream of future dividends discounted at a rate equal to the return expected.

The equation, when the dividends are expected to grow at a constant rate, less than the return rate is:

        [tex]Price_0=\dfrac{Div_1}{r-g}[/tex]

Where:

  • Price₀ is the current price: $44.12
  • Div₁ is the dividend to be paid a year from now: $0.46 × 1.145 = $0.53
  • g is the expected constant growth rate: 14.5% = 0.145
  • r is the expected return

Then, you can solve for r:

      [tex]r=\dfrac{Div_1}{Price_0}+g[/tex]

        [tex]r=\dfrac{\$ 0.53}{\$ 44.12}+0.145=0.157=15.7\%[/tex]

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