Question

Super Computer Company's stock is selling for $100 per share today. It is expected that, at the end of one year, it will pay a dividend of $6 per share and then be sold for $114 per share. Calculate the expected rate of return for the shareholders. A) 20% B) 15% C) 10% D) 25%

Answer 1

Answer: A. 20%

Explanation:

The expected return takes into account whatever dividends and capital gains accrue to a stock over the period.

Expected return = (Price at end of period + Dividends - Price at beginning of period) / Price at beginning of period

= (114 + 6 - 100) / 100

= 20/100

= 20%