Question

The current listed price per share of a certain common stock is $15. The cash dividend expected from this corporation in one year is $2 per share. All market research indicates that the expected constant growth rate in dividends will be 4 percent per year in future years. What is the rate of return on this investment that an investor can expect if shares are purchased at the current listed price

Answer 1

the rate of return on the investment is 17.33%

Step-by-step explanation:

The computation of the rate of return is shown below:

The Rate of return is

= (Dividend at year 1 ÷ Price year at 0) + growth rate

= ($2 ÷ 15) + 0.04

= 17.33%

Hence, the rate of return on the investment is 17.33%

We simply applied the above formula so that the rate of return could come

And, the same would be relevant