Answer:
The expected return on the company common stock is 4,03%
Explanation:
We can use the dividend growth model to determine the expected return on the company's common stock.
The formula is as follows P = / ( k - g )
Where P = fair price of share ( current share price )
g = dividend growth rate (4%)
k = required rate of return
D = dividend expected in the following year ($1,50)
We need to solve for k and rearrange the formula to solve for K.
k = D/p + g
k = 4,03%
If we substitute K into the original formula we also end up with P = 45 which is the current share price.