Purchase Solution

Dividend Discount Model and Required Rate of Return

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution
Solution Summary

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

Solution Preview

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

Formula ...

Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Operations Management

This quiz tests a student's knowledge about Operations Management

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Introduction to Finance

This quiz test introductory finance topics.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • Dividend Discount Model / Stock Valuation

    Dividend Discount Model: Go to www.dividenddiscountmodel.com and enter BA (for Boeing) as the ticker symbol. You can enter a required return in the Discount rate Box and the site will calculate the stock price using the dividend discount model.

  • Stock Valuation

    Using the growing perpetuity model (also called the dividend discount model) and the growth rate you determined previously, solves for the shareholders' required rate of return.

  • Constant growth valuation formula for stocks

    The required return on Chapman Tech's stock is 11% and its dividend is expected to grow at a constant rate of 7% per year. Rust Petroleum is expected to pay a $ 1.50 dividend at the end of the year.

  • Intrinsic Value of a Stock and the Dividend Discount Model

    Similarly, for an investor with a required rate of return of 8%, the current price represents a discount of $86.60, and for an investor with a required rate of return of 6% the current price represents a discount of $593.

  • Time Value of Money in bond market value; zero growth

    The weaknesses of this model include the difficulty in forecasting the variable growth rate of the dividend and that the growth rate cannot be greater than the required return of the shareholders.

  • Growth Rate of Dividends (Constant Rate)

    The dividend discount model says that Market Price = Expected Dividend (D1)/(required rate - growth rate) and D1 = D0 X (1+ growth rate) It is given that Market Price = $40. We need the required rate. This rate can be calculated using the CAPM.

  • Bond Valuation, Dividend Discount Model, Required Return, CAPM

    376312 Bond Valuation, Dividend Discount Model, Required Return, CAPM A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%.

  • Stock Value Using CAPM and DDM

    .%+1.3*(11.%-4.%) 2) We then calculate the value of stock using Dividend Discount Model In this model we use required return on equity calculated above Using the Dividend Discount (

  • Dividend discount model

    261853 Dividend discount model Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever.

View More Related Solutions