SloMo is a camera manufacturer that recently listed its shares for trading on the stock exchange. At the time of the listing, investors expected the firm to pay a $1 dividend in its first year. After that, the dividends were expected to grow by 7% per year forever. The equity cost of capital required by investors was 10%. In the days following the listing, investors upgraded their expectations of the dividend growth rate to 7.5%. How large is the realized return of SloMo's stock resulting from this change in the expected dividend growth rate? Enter your answer as a decimal number with three significant digits. For example, if you find the return to be 1.234%, enter 0.0123.

Answer rating: 100% (QA)

To calculate the realized return resulting from the change in the expected dividend growth rate we c... View the full answer