Question

Quixy Corp. is expected to pay a dividend next year of $0.77 per share. The dividend is expected to grow at a constant rate of 3% per year. If Quixy Corp. stock is selling for $46.51 per share, what is the stockholders' expected rate of return? Submit your answer as a percentage and round to two decimal places (Ex. 0.00%).

Answer 1

The stockholders' expected rate of return

Here, we’ve the Current price per share of common stock (P0) = $46.51 per share

Expected dividend per share next year (D1) = $0.77 per share

Constant annual dividend growth rate (g) = 3.00%

Therefore, the expected rate of return (Ke) = [D1 / P0] + g

= [$0.77 / $46.51] + 0.03

= 0.0166 + 0.03

= 0.0466 or

= 4.66%

“Hence, the stockholders' expected rate of return will be 4.66%”