CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

The current price of Galaxy Electronics stock is $50.00. Dividends are expected to grow at 7% indefinitely and the most recent dividend was $1. What is the required rate of return on Galaxy Electronics stock?

A. 9.1%
B. 9.3%
C. 9.0%
Correct Answer: A

User Contributed Comments 11

User Comment
cgeek why A ? 50 = 1 / (x - 7%) x = 9 %
jamiejamie because the $1 dividend is the MOST RECENT. The dividend value in the infinite DDM formula is the value of the divident after one year. So you have to put 1.07 in the numerator, not $1. When you use that value, you will get 9.0914
jamiejamie sorry, you will get 0.0914! (9.14%)
morpheus918 Answer is $9. $1 should be in the dividend, not 1.07 because $50 is the price now, not a year in the future.
morpheus918 Oops! Where's the delete key? Jamie's right, 9.14% is correct.
accounting the working is (1.07/50)+.07 all by 100
Rotigga $50 = $1(1+0.07)/(r-0.07);
50r - 3.5 = 1 + 0.07;
50r = 4.57;
r = 0.0914 = 9.14%
missmalik Value for indefinate model is = Do(1+g)/k-g
multiply both side by (k-.07)= 50k-3.5=1.07
k=4.57/50=.0914*100= 9.14%
11Blaise Value for indefinate model is = Do(1+g)/k-g
loisliu88 it's the cost of common stock-dividend discount model: r= D1/P + g
tochiejehu use the constant growth formular and make r d subject of formular
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