Question

stock in simons industries is currently selling for $79. it just paid its annual dividend of $2, which have consistently grown at a rate of 2.90%. what is the expected return of this stock? group of answer choices 5.82% 5.51% 5.61% 5.53% 5.56%

Answer 1

The expected return of the stock can be calculated as follows:

Expected Return = (Dividend Yield) + (Capital Gains Yield)

Dividend Yield = Annual Dividend / Stock Price = $2 / $79 = 0.0253

Capital Gains Yield = Growth Rate of Dividends = 2.90%

Expected Return = 0.0253 + 0.0290 = 0.0543 = 5.43%

Therefore, the expected return of this stock is 5.43%, which is closest to 5.51%.