Question

Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.85 at the end of the year. Its dividend is expected to grow at a constant rate of 6.00% per year. If Walter’s stock currently trades for $25.00 per share, what is the expected rate of return?
A. 6.80%
B. 6.11%
C. 13.80%
D. 17.40%

Answer 1

Answer:

The expected rate of return is 17.40%, which is option D.

Explanation:

Hi, to find the expected rate of return, you just have to use the following formula.

$r=\frac{Dividend}{Price} +GrowthRate$

Therefore:

$r=\frac{2.85}{25} +0.06=0.1740$

So, the expected rate of return is 17.40%, in other words, D

Best of luck