If Negan Corp. common stock is valued at $40 per share, dividends are paid quarterly and expected to grow quarterly by 1.2% forever, and the next dividend is due in 3 months and expected to be $3, then what is the expected annual return on Negan Corp. stock?
Next Dividend = $3
g = Growth rate = 1.2%
Price of Common Stock = $40
Rate of return for 3 months = r
Price of common stock today = Next dividend / (r - g)
$42 = $3 / (r - 1.2%)
(r -1.2%) = 0.071429
(r - 1.2%) = 7.1429%
r = 8.3429%
Annual Return for Negan Corp. Stock = 8.3429% * 4 = 33.3716%
Annual Return for Negan Corp. Stock is 33.37%
If Negan Corp. common stock is valued at $40 per share, dividends are paid quarterly and...
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