Question

Royal Cup’s last dividend was $ 1.00 per share and dividends are expected to grow at a rate of 6%. What is the current value of a share of this stock to an investor who requires a 10 percent rate of return?

Answer 1

That depends upon the price of the stock. A 10% rate of return on a stock selling for $10 would be $1.00. A 10% rate on a stock selling for $100 would $10.

It also depends upon whether the stock price increases.