Return on Common Stock You buy a share of The Ludwig Corporation stock for $19.20. You expect it to pay dividends of $1.06, $1.17, and $1.2914 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $29.08 at the end of 3 years. Calculate the growth rate in dividends. Round your answer to two
decimal places. Calculate the expected dividend yield. Round your answer to two
decimal places. Assuming that the calculated growth rate is expected to
continue, you can add the dividend yield to the expected growth
rate to obtain the expected total rate of return. What is this
stock's expected total rate of return? Round your answer to two
decimal places. |
1)D2 = D1 (1+g)
1.17 = 1.06 (1+g)
1+g = 1.17/1.06.
g =1.1038 -1
= .1038 or 10.38%
2)Average dividend over 3 years = (1.06+ 1.17+1.2914)/ 3 = 3.5214 / 3 = 1.1738
Dividend yield = 1.1738 / 19.20 = .0611 or6.11%
3)Capital gain yield = (29.08-19.2)/19.2 = 9.88/19.2 = .5146 or 51.46%
Rate of return = 6.11 + 51.46 = 57.57%
Return on Common Stock You buy a share of The Ludwig Corporation stock for $19.20. You...
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