Woidtke: Required Rate of Return on the Company's Stock

Woidtke Manufacturing's stock currently sells for $20 a share. The stock just paid a dividend of $1.00 a share (i.e, D0 = $1.00). The dividend is expected to grow at a constant rate of 10% a year. What stock price is expected 1 year from now? What is the required rate of return on the company's stock?

Solution Summary

The solution comprises of 5 lines of calculations to find the required rate of return.

42. If the expected rate of return on a stock exceeds therequiredrate
1. Thestock is experiencing supernormal growth
2. Thestock shoudl be sold
3. The company is probably not trying to maximize price per share
4. Thestock is a good buy
5. Dividends are not being declared
(Pick the best answer)

A stock has a beta of 1.5, the market risk premium is 9%, and the risk-free rate is 5%.
a. What is therequiredrate of return on this stock?
b. What is the expected return on the market?
c. If based on your personal opinion thestock will generate a return of 20%, is thestock over-valued or under-valued? Would you buy or

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1) Calculate the com

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You are holding a stock which is currently in equilibrium. Therequiredrate of return on thestock is 15 percent when therequiredreturn on an average stock is 10 percent. What will be the percentage change in therequiredreturn on thestock if therequiredreturn on an average stock increases by 30 percent while the risk-fre

The 30 year treasury bond market rate is 5%, thestock market premium is 6%, and a company's beta is 1.5. Use the CAPM to calculate therequiredreturn for that company'sstock; then explain the logic of this calculation.