Question

Question Help ​(Common stockholder expected return​) The market price for Earnest Corporation common stock is ​$ 45 45 per share. The price at the end of 1 year is expected to be ​$ 50 50​, and dividends for next year should be ​$ 1.50 1.50. What is the expected rate of​ return?

Answer 1

Growth rate = [(ending value - beginning value) / beginning value] * 100

Growth rate = [(50 - 45) / 45] * 100

Growth rate = 11.11%

Expected return = (D1 / current price) + growth rate

Expected return = (1.5 / 45) + 0.1111

Expected return = 0.0333 + 0.1111

Expected return = 0.1444 or 14.44%