Expected Return A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year. Since analysts estimate the company will have a 11.25% growth rate, what is its expected return?
A) 3.44%
B) 3.61%
C) 11.25%
D) 14.69%

Question

Quizplus · Accepted Answer

The expected return can be calculated using the dividend discount model formula:

Expected Return = (Dividend / Price) + Growth Rate

Substituting the given values:

Expected Return = ($2.25 / $65.40) + 11.25%

Expected Return = 0.03444 + 0.1125

Expected Return = 0.1469 or 14.69%

Therefore, the correct answer is D) 14.69%.

Expected Return a Company's Current Stock Price Is $65