Final answer:
The expected return of a stock investment considering dividends and capital gains is calculated by dividing the sum of dividends and price change by the initial price. This results in a 12% expected return for the stock given in the question.
Step-by-step explanation:
The expected return of a stock can be calculated by considering the dividend yield and the capital gains yield. In the provided scenario, the expected dividend is $3 and the expected selling price after one year is $81, with the current stock price at $75. To calculate the expected return, we use the formula:
Expected Return = (Dividends + Price Change) / Initial Price
In this case:
Dividends = $3
Price Change = $81 - $75 = $6
Initial Price = $75
Therefore:
Expected Return = ($3 + $6) / $75
Expected Return = $9 / $75
Expected Return = 0.12 or 12%
The correct direct answer to the question is A. 12%.