The next dividend payment by Mosby, Inc., will be $3.30 per share. The dividends are anticipated to

The next dividend payment by Mosby, Inc., will be $3.30 per share. The dividends are anticipated to maintain a 2.75 percent growth rate, forever.

 

Required:

If the stock currently sells for $50.20 per share, what is the required return? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

 

Required return

%

Explanation:

We need to find the required return of the stock. Using the constant growth model, we can solve the equation for R. Doing so, we find:

 

R = (D1 / P0) + g

R = ($3.30 / $50.20) + 0.0275

R = 0.0932 or 9.32%