Jerry considering purchasing the stock of Walmart. He uses the dividend growth model to evaluate Walmart's price. The stock is expected to pay a＄5 dividend next year and dividends are expected to grow at 4 percent in the future. The required rate of return is 11% for Jerry to invest. Under these conditions,

(a) Calculate the price for Walmart's stock. 

(b) If Jerry thinks Walmart's risk will decrease in the future because of economic recovery, will he require a higher rate of return or a lower rate of return? How will the stock price change in this case?

(c) If the dividend growth is expected to decrease to 3 percent in the future, what is the price of the stock in this case?

Answer rating: 100% (QA)

a To calculate the price for Walmarts stock using the dividend growt... View the full answer