Question

(Common stockholder expected retum) Ziercher executives anticipate a growth rate of 8 percent for the company's common stock. The stock is currently selling for $44.79 per share and pays an end-of-year dividend of $1.82. What is your expected rate of return if you purchase the stock for its current market price of $44.79 ? Your expected rate of return is \%. (Round to two decimal places.)

Answer 1

If you purchase Ziercher's common stock at $44.79 with an end-of-year dividend of $1.82 and an expected growth rate of 8%, your expected rate of return would be 12.06%.

Step-by-step explanation:

The expected rate of return on Ziercher's common stock, which is currently selling for $44.79 and pays an end-of-year dividend of $1.82, can be calculated using the dividend yield and expected growth rate. To determine the expected rate of return, one would calculate the dividend yield by dividing the dividend by the current price of the stock and then add the expected growth rate. Mathematically, this can be expressed as:

Expected Return = (Dividend / Price) + Growth Rate

For Ziercher, the expected return would be:

Expected Return = ($1.82 / $44.79) + 0.08

After completing the calculation and rounding to two decimal places:

Expected Return = 0.0406 + 0.08

Expected Return = 0.1206, or 12.06%

Therefore, if you purchase the stock at its current market price of $44.79, your expected rate of return would be 12.06%.