Answer:
When expected return is lowered to 8% share price is $53
Explanation:
The price of a stock =Do*(1+g)/r-g
Do is the dividend received last year of $1.00
g is the growth rate of dividend which is 6% per year
r is the required rate of return which is 8%
The price of Bosstown Inc's stock=$1.00*(1+0.06)/(0.08-0.06)
=$53
The price at 11.6% rate of return is also computed thus:
price=$1.00*(1+0.06)/(0.116-0.06)
=$18.93
Hence by reducing expected return from 11.6% to 8% , the share price increased from $18.93 to $53,hence the higher the expected return , the lower the share price
