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. 15 percent
b. 20 percent
c. 10 percent
d. 25 percent

Answer 1

The expected rate of return for Super Computer Company shareholders is 20 percent, calculated by adding the dividend and the capital gain, then dividing by the current stock price.

Step-by-step explanation:

To calculate the expected rate of return for shareholders of Super Computer Company, we consider the dividend payment expected after one year, which is $6 per share, and the anticipated selling price after one year, which is $114 per share.

The current price of the share is $100. The expected rate of return is calculated by dividing the sum of the dividend and the capital gain (expected selling price - current price) by the current price of the stock. Thus, we have (6 + (114 - 100)) / 100 = 20 / 100 = 0.20 or 20 percent.