Question

Lake Shore Vineyards recently paid a $4.20 annual dividend on their common stock. This dividend increases at an average rate of 4.2 percent per year. The stock is currently selling for $80.65 a share. What is the market rate of return

Answer 1

Rate of return = 9.63%

Step-by-step explanation:

Current stock price = Current dividend * (1+growth rate) / (Rate of return - growth rate)

Current stock price = $80.65

Current dividend = $4.20

Growth rate = 4.2% = 0.042

Rate of return = ?

$80.65 = $4.20*(1 + 0.042 ) / (Rate of return - 0.042)

$80.65 = $4.20*(1 .042) / (Rate of return - 0.042)

$80.65 = $4.3764 / (Rate of return - 0.042)

$80.65 * (Rate of return - 0.042) = $4.3764

$80.65* Rate of return - $3.3873 = $4.3764

$80.65* Rate of return = $4.3764 + $3.3873

$80.65* Rate of return = $7.7637

Rate of return = $7.7637 / $80.65

Rate of return = 0.0962641041537508

Rate of return = 9.63%