Question

Lotsa Lenses paid a dividend of $1.17 last year and plans a dividend growth rate of 3.70% indefinitely. Lotsa’s stock price is now $14.44. What return can Lotsa Lenses’ investors expect on their stock?

Answer 1

To calculate the return investors can expect on their stock, we need to use the dividend growth model. Lotsa Lenses' investors can expect a return of 8.1% on their stock.

Step-by-step explanation:

To calculate the return investors can expect on their stock, we need to use the dividend growth model. The formula for this model is Return = Dividend / Stock Price. In this case, the dividend paid by Lotsa Lenses last year was $1.17, and the stock price is currently $14.44.

Using the formula, we can calculate the return as: Return = $1.17 / $14.44 = 0.081. Multiplying this by 100 to convert it to a percentage, we get a return of 8.1%.

Therefore, Lotsa Lenses' investors can expect a return of 8.1% on their stock.

Answer 2

12.10%

Step-by-step explanation:

Given that,

Dividend paid last year = $1.17

Dividend growth rate = 3.70%

Stock price = $14.44

Dividend for the next period:

= Dividend paid last year × (1 + Dividend growth rate)

= $1.17 × (1 + 0.037)

= $1.17 × 1.037

= $1.21329

Return expected:

= (Dividend for the next period ÷ Current price) + Growth rate

= ($1.21329 ÷ $14.44) + 0.037

= 0.0840 + 0.0370

= 8.40% + 3.70%

= 12.10% (Approximately)