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00 a share (i.e., D0=$1.00). The dividend is expected to grow at a constant rate of 6 percent a year. WHAT STOCK PRICE IS EXPECTED 1 YEAR FROM NOW? WHAT IS THE REQUIRED RATE OF RETURN ON THE COMPANYS STOCK? P0 = $20 D0 = $1.00 g = 6%
P1 = ? ks
P1
= P0 ( 1 + g )
= $20 ( 1.06 )
= 11.3%