common stock sells for $29.37 a share. The stock is expected to pay $2.45 per share next year when the annual dividend is distributed. The firm established a pattern of increasing its dividends by 1.5 percent annually and expects to continue doing so. What is the market rate of return on this stock?
Given :
P0 = 29.37 ($)
D1 = 2.45 ($)
g = 1.5 % = 0.015
Now,
Dividend yield = D1/P0
= 2.45/29.37
= 0.0834
Market rate of return, r
= Dividend yield + g
= 0.0834 + 0.015
= 0.0984
= 9.84 % (ANSWER)
market rate of return=(D1/Current price)+Growth rate
=(2.45/29.37)+0.015
which is equal to
=9.84%(Approx).
common stock sells for $29.37 a share. The stock is expected to pay $2.45 per share...
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