Question

The common stock of Sweet Treats is selling for $50.15 per share. The company is expected to have an annual dividend increase of 3.6 percent indefinitely and pay a dividend of $3.80 in one year. What is the total return on this stock?

Answer 1

11.2%

Step-by-step explanation:

Here, we want to calculate the total return on the stock.

From the question, Price = $50.15

Mathematically;

P = D1/Ke-g

D1 = $3.80

g = 3.60%

So let’s calculate Ke-g

50.15 = 3.8/ke-g

Ke-g = 3.8/50.15

Ke-g = 7.6%

but g = 3.6%

Total return Ke = 3.6% + g = 3.6% + 7.6% = 11.2%