Expected Return A company's current stock price is $84.50 and it is likely to pay a $3.50 dividend next year.Since analysts estimate the company will have a 10 percent growth rate,what is its expected return?
A)4.14 percent
B)4.26 percent
C)10.00 percent
D)14.14 percent

Question

Quizplus · Accepted Answer

The expected return can be calculated using the dividend discount model, which is:

Expected Return = (Dividend Payment / Current Stock Price) + Growth Rate

Substituting the given values, we get:

Expected Return = ($3.50 / $84.50) + 0.10
Expected Return = 0.0414 + 0.10
Expected Return = 0.1414 or 14.14%

Therefore, the correct choice is D.

Expected Return a Company's Current Stock Price Is $84