Question

Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $0.65 at the end of the year. Its dividend is expected to grow at a constant rate of 9.50% per year. If Walter’s stock currently trades for $12.00 per share, what is the expected rate of return? 954.95% 14.92% 921.67% 1,006.88%

Answer 1

Answer:

option 14.92%

Explanation:

Data provided in the question;

Expected annual dividend to be paid = $0.65

Expected growth rate = 9.50%

Walter’s stock currently trades = $12.00 per share

Now,

Expected rate of return = $\frac{\textup{Expected dividend}}{\textup{Stock price}}\times100\%$ + Growth rate

or

Expected rate of return = $\frac{\ 0.65}{\ 12.00}\times100\%$ + 9.50%

or

Expected rate of return = ( 0.054167 × 100% ) + 9.50%

or

Expected rate of return = 5.4167% + 9.50%

or

Expected rate of return = 14.9167 ≈ 14.92%

Hence, the correct answer is option 14.92%