**Question:**A stock that pays a constant dividend of $1.50 forever currently sells for $10.71. What is the required rate of return?- ○ 10%- ○ 12%- ○ 13%- ○ 14%- ○ 15%**Analysis:**To determine the required rate of return for a stock paying constant dividends, we use the formula for a perpetuity:\[ \text{Required Rate of Return} = \frac{\text{Dividend}}{\text{Current Price}} \]In this case:Dividend = $1.50Current Price = $10.71By applying the formula, calculate the required rate of return to find the correct answer from the options provided.

Required rate of return = Constant dividend / Current selling price of the stock

Answered: A stock that pays a constant dividend…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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