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    Dividend Discount Model and Required Rate of Return

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    XYZ corporation is expected to pay an annual dividend of $10 per share in 12 months. The market expects XYZ company will increase its dividend by 5% per year thereafter. The price of XYZ shares is currently $100. What is the market required return on XYZ's common stock?

    Please manually write out formula. Can take a screen shot and upload.

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    Solution Preview

    Will use the Dividend Discount Model to compute the required return...

    Formula ...

    Solution Summary

    The solution shows step-by-step calculations to determine the required rate of return using dividend discount model.