Question of the Week

KLM Corporation shares just paid a dividend of $1.34. Earnings are expected to grow at 7% while the dividend payout ratio is fixed at 40%. If investors require a total rate of return of 13% on this stock, what would be a fair market value for this stock?

a) $13.14
b) $23.83
c) $22.33
d) $14.02

Answer:

The correct answer is: b)



2005 CFA Level 1 LOS: 14.3.b