HARRISON CLOTHIERS stock currently sells for $20 a share.

The stock just paid a

dividend of $1.00 a share (i.e., D0=$1.00). The dividend is expected to grow at a constant
rate of 6 percent a year.
WHAT STOCK PRICE IS EXPECTED 1 YEAR FROM NOW? WHAT IS THE
REQUIRED RATE OF RETURN ON THE COMPANYS STOCK?
P0 = $20
D0 = $1.00
g = 6%

P1 = ?

ks

P1

P0 1 g

$20 1.06

= $21.20
ks

= 11.3%

D1
g
P0

$1.00 1.06
0.06
$20