Asked by kenny

eddy is considering a stock purchase. the stock pays constant annual dividend of $2.00 per share, and is currently trading at $20 . Eddy's required rate of return for this stock is 12%. should he buy this stock?
Answered by Ms. Sue
Since 12% of $2.40 and the stock only pays $2.00 a share, this stock doesn't meet Eddy's goal.
Answered by Damon
2/20 = 10%
It better go up by 2% a year :)

2/x = .12
x = 2/.12 = 16 2/3

If he wants 12% in dividends, he better not pay any more than 16.67 dollars for the stock.
Answered by Ms. Sue
Another thought -- if the price of the stock increases (and that's a big IF), then it might more than fulfill his goal.
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