Homework SourseYouve collected the following information from your favorite
You’ve collected the following information from your favorite financial website.
According to your research, the growth rate in dividends for Palm Coal for the previous 10 years has been 4.25 percent.
If investors feel this growth rate will continue, what is the required return for Palm Coal stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return %
| 52-Week Price | Stock (Div) | Div Yld % | PE Ratio | Close Price | Net Chg | |
| Hi | Lo | |||||
| 77.7 | 10.46 | Palm Coal .39 | 2.7 | 6 | 14.20 | –.24 |
| 55.81 | 33.42 | Lake Lead Grp 1.54 | 3.8 | 10 | 40.43 | –.01 |
| 130.93 | 69.50 | SIR 2.00 | 2.2 | 10 | 88.97 | 3.07 |
| 50.24 | 13.95 | DR Dime .80 | 5.2 | 6 | 15.43 | –.26 |
| 35.00 | 20.74 | Candy Galore .32 | 1.5 | 28 | ?? | .18 |
Solution
the required return for Palm Coal stock = 0.39*1.0425/14.20 + 4.25%
the required return for Palm Coal stock = 7.11%
