Question

Walter utilities is a dividend-paying company and is expected to pay an annual divident of $0.85 at the end of the year. Itts dividend is expected to grow at a constant rate of 9.00%p per year. If walter's stock currently trades for $18.00 per share, what is the expected rate of return?

a. 13.72%
b. 8.32 %
c.9,04%
d. 9.47%

Answer 1

rate of return = 0.13722 = 13.72 %

so correct option is a. 13.72%

Step-by-step explanation:

given data

annual divident = $0.85

constant rate = 9.00%

stock currently trades = $18.00 per share

to find out

expected rate of return

solution

we know that expected rate of return is express as here

rate of return =
`(Expected dividend)/(Price)` + growth ........................1

so put here value we get

rate of return =
`(Expected dividend)/(Price)` + growth

rate of return =
`(0.85)/(18)` + 9%

rate of return = 0.047222 + 0.09

rate of return = 0.13722 = 13.72 %

so correct option is a. 13.72%