A company will pay a dividend of $1.25 next year. The dividend is expected to grow at...

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A company will pay a dividend of $1.25 next year. The dividend is expected to grow at...

A company will pay a dividend of $1.25 next year. The dividend is expected to grow at a constant rate of 4.5% into the foreseeable future. The current stock price is $22.90 per share. What are the stock’s expected dividend yield AND its expected total return for the coming year?

	a.	4.26% and 4.50%
	b.	6.25% and 10.75%
	c.	5.46% and 9.96%
	d.	4.26% and 8.76%
	e.	5.46% and 4.50%

business finance

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Answer 1

Answer #1

The Gordon growth formula is given as :

Price = Div/(R - g)

22.9 = 1.25/(R - 0.045)

Hence, R = 9.958%.

Expected Dividend yield will be = 1.25/22.9 = 5.458%

Hence, option C is correct.

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Answer 2

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