Question

Alaskan foodstuffs just announced the annual dividend for this coming year will be $0.36 a share and all future dividends are expected to increase by 4.5 percent annually. what is the market rate of return if the stock is currently selling for $12.20 a share?

Answer 1

Price of share is $12.2. Future dividend is therefore expected to grown by 4.5%. To find the rate of return i.e. K, we will do the following steps:

= 0.36(1.045)/12 = 0.03135+4.5 = 4.53135

Therefore, rate of return is 4.53%.