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Constant Growth Stock Valuation

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Little Rock stock is currently selling for $42.86. It is expected to pay a dividend of $3.00 at the end of the year. Dividends are expected to grow at a constant rate of 3% indefinitely. Compute the required rate of return on LR stock.

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Solution Summary

This solution shows you how to calculate the required rate of return on a stock, using the constant growth stock valuation model/formula.

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Hello Student,

This question relates to the topic of Constant Growth Stock Valuation. You may note before you find the required rate of return on LR stock that, "a constant growth stock is a stock whose dividends are expected to grow at a constant rate in the foreseeable future. The value of a constant growth stock can be determined using the ...

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