Steady As She Goes Inc. will pay a year-end dividend of $3.40 per share. Investors expect the dividend to grow at a rate of 5% indefinitely.

a. If the stock currently sells for $34.00 per share, what is the expected rate of return on the stock?

b. If the expected rate of return on the stock is 16.5%, what is the stock price?

a.

15%

b.

29.57

Explanation:

The price of a stock whose dividends are expected to grow at a constant rate forever can be calculated using the constant growth model of the dividend discount model approach. The DDM values the stock based on the preset value of the expected future dividends from the stock. The price of the stock today under this model is,

P0 = D1 / r - g

Where

P0 = Price of stock

D1 = Future Dividend

r = Expected rate of return

g = Growth rate

a.

As we have the price of the price of the stock, we need to calculate the expected rate of return by extracting the formula.

r = (D1 / P0) + g

As per given data

P0 = Price of stock = $34

D1 = Future Dividend = $3.40

g = Growth rate = 5% = 0.05

Placing Values in the formula

r = ( $3.4 / 34 ) + 0.05

r = 0.15  = 15%

b.

As per given data

D1 = Future Dividend = $3.40

g = Growth rate = 5% = 0.05

r = Expected rate of return = 16.5%

Placing Values in the formula

P0 = D1 / r - g

P0 = $3.40 / (16.5% - 5%)

P0 = $29.57

answer; ( prices are sticky);

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi