If you purchase TrisCorp stock at $71 a share and the firm pays a $5.20 dividend...
If you purchase TrisCorp stock at $71 a share and the firm pays a $5.20 dividend which is expected to grow at 7.5 percent, what is the implied annual rate of return on the investment?
Homework Answers
Answer:
As per Dividend Growth Model,
Implied annual return = Expected dividend / Current price + Growth rate
Here,
Expected dividend = Current dividend x (1 + Growth rate) = 5.20 x 1.075 = $5.59
Current price = $71
Growth rate = 7.5% = 0.075
So,
Annual return
= [5.59 / 71] + 0.075
= 0.0787 + 0.075 = 15.37%
Thus implied annual rate of return on the investment is 15.37%
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