Question

The common stock of Sweet Treats is selling for $45.65 per share. The company is expected to have an annual dividend increase of 2.6 percent indefinitely and pay a dividend of $3.30 in one year. What is the total return on this stock

Answer 1

9.83%

Step-by-step explanation:

The computation of the total return on the stock is shown below:

As we know that

Share price = Next year dividend ÷ (Required rate of return - growth rate)

$45.65 = $3.30 ÷ (Required rate of return - 2.6%)

Let us assume the required rate of return be X

So,

$45.65 × X - 1.1869 = $3.30

$45.65 × X = $3.30 + $1.1869

So, the X is 9.83%

Hence, the total return on the stock is 9.83%