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    Stock's Dividend and Expected Rate of Return

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    The expected rate of return on the common stock of NW Corp. is 14 percent. The stock's dividend is expected to grow at a constant rate of 8 percent a year. The stock currently sells for $50 a share. Which of the following statement is most correct?

    f. the stocks dividend yield is 8%
    g. the stocks dividend yield is 7%
    h. the current dividend per share is $4.00
    i. the stock price is expected to be $54 a share in one year
    j. the stock price is expected to be $57 a share in one year

    Please explain answers in detail.

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    Solution Preview

    R = 14%
    g = 8%
    P = $50
    By DDM method, we can write:
    P = ...

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