Expected Return A company's current stock price is $22.00 and its most recent dividend was $0.75 per share.Since analysts estimate the company will have a 12 percent growth rate,what is its expected return?
A)3.00 percent
B)3.48 percent
C)12.00 percent
D)15.82 percent

Question

Quizplus · Accepted Answer

Expected Return = Dividend Yield + Capital Gains Yield

Dividend Yield = Annual Dividend / Stock Price 
              = 0.75 / 22.00 
              = 3.41%

Capital Gains Yield = Growth Rate 
                    = 12%

Expected Return = 3.41% + 12% 
                = 15.82%

Therefore, the expected return is 15.82%, which is closest to option D (15.82%).

Expected Return a Company's Current Stock Price Is $22