Question

What rate of return is expected from a stock that sells for $30 per share, pays $1.54 annually in dividends, and is expected to sell for $32.80 per share in one year?
A. 15.03%
B. 14.28%
C. 14.09%
D. 14.47%

Answer 1

Answer:Expected Rate of Return = 14.47%

Explanation:

Given that Dividend= $1.54

Price of stock = $30

Expected selling price of stock = $32.80

Expected Rate of Return = (Dividends Paid + Capital Gain) / Price of Stock

Capital gain = Expected selling price - Buying price of stock

= $32.80- $30.00

= $2.80

Expected Return = ($1.54 + 2.80)/ 30

=0.1446666 x 100

=14.465 ≈14.47%