Question: A stock has a price ( i . e . , present value of all cash flows from the stock expected by investors ) of

A stock has a price (i.e., present value of all cash flows from the stock expected by investors) of $24.50 today. It is expected to pay a dividend of $1.10 per share next year, $1.20 per share in the following year, $1.90 in the subsequent U years (i.e., pay a dividend of $1.90 in years 3 through year U+2 into the future), and then be sold for $55.00 in U+2 years (where that $55 represents the present value of all dividends expected after U+2 years). Compute the interest rate or expected return on this stock (i.e., iterate to find the r that sets the sum of the present value of the future expected cash flows equal to the $24.50 present value).

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