Question

Groupong Inc. recently paid a $2.78 annual dividend on its common stock. This dividend increases at 3.50 percent per year and the stock currently sells for $38.30 a share. What is the rate of return? A. 15 percent B. 17 percent C. 11 percent D. 13 percent

Answer 1

Answer:

c) 11%

Explanation:

The question is to determine the rate of return on Groupong Inc's

The rate of return represents an investment's net gain or net loss calculated over a period of time and usually expressed in terms of the percentage of the initial cost of investment.

The rate of return in this question is calculated as follows:

Rate of Return = (The Dividend for the next year/ the current price of the share) + The Growth rate

The dividend for the next year = current year dividend x (1+r), where r is 3.5

= 2.78 x (1+0.035)

=2.78 x 1.035

= (2.8773/38.3) + 0.035

=0.1101 or 11%