Question

KellyAnne Public Relations just paid an annual dividend of $1.27 on its common stock and increases its dividend by 3.4 percent annually. What is the rate of return on this stock if the current stock price is $38.56 a share

Answer 1

Answer:

6.81%

Explanation:

KellyAnne public relation just paid an annual dividend of $1.27 on common stock and it increase by 3.4 percent annually

The first step is to calculate next year dividend

= 1.27 + 1.27 × 3.4/100

= 1.27 + 1.27 × 0.034

= 1.27 + 0.04318

= 1.3132

Therefore the required rate on the stock can be calculated as follows

Required rate of return - 3.4%= 1.3132/38.56

= Required rate of return -3.4%= 3.41%

Required rate of return= 3.41% + 3.4%

= 6.81%

Hence the required rate of return on the stock is 6.81%