Lnder wood Univers canvas D student Portal Login LU EMail McNNECT connect 7 CH 0

Question

Lnder wood Univers canvas D student Portal Login LU EMail McNNECT connect 7 CH 09 Characterizing Risk&Retum;, CH 10 Estimating Risk&Return; Question 10 (of 11) value: 3.00 points Suppose Paccar's current stock price is $88.35 and it is likely to pay a $2.91 dividend next year Since analysts estimate Paccar will have an 15.0 percent growth rate, what is its required return? (Round your answer to 2 decimal places.) Required return Hints References eBook & Resources Hint #1 Hint #2 Hint #3 Hint #4 Hint u5 IBA

Explanation / Answer

According to dividend-discount model,

P0 = D1/(R-G)

P0 = Current stock price

D1 - Dividend at t =1

R - Required rate

G - Growth rate

88.35 = 2.91/(R-0.15)

R = 0.1829 = 18.29%

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