why no answer is the figure that I get ? HPR = (P1-P0+D0)/P0 An investor purchased stock in a companyfor $20 at the end of a year for which the company reported EPS of $4.00. Due to capital investment needs, the company retains 75% of earnings and intends to maintain this retention rate in the future. Return on equity (ROE) is constant at 33.3%. If the expected price of the stock in one year is $25, the expected I-year holding period return on this stock is: A. 12.25%. B. 24.00%. C. 28.50%. D. 31.25%.
Is it D? Growth = ROE x RR Growth = 24.975% Dividend you will get = 1.24975 HPR = 1.24975+5 / 20 = 31.25%
Yes it is correct. Why the divident is 1.24975? Thanks!
I got it. EPS = 4 Payour Ratio = 1-.75=.25 The D0=4*.25=1 D1=1*(1+g)=1.24975