Question

A company's current stock price is $50.00 and its most recent dividend was $2.00 per share. Since analysts estimate the company will have a 5 percent growth rate, what is its expected return?

Answer 1

Answer:

Expected rate of return  =7.1% (Approx.)

Step-by-step explanation:

Given:

Current stock price = $50

Divided d = $2

Growth rate g = 5 %

Find:

Expected rate of return

Computation:

Expected rate of return = D(1+g)/Current Price + g

Expected rate of return = [2(1+5%)/50] + 5%

Expected rate of return  =7.1% (Approx.)