A company’s current stock price is $86.10 and it is likely to pay a $5.10 dividend next year. Since analysts estimate the company will have a 10% growth rate, what is its expected return?

A company’s current stock price is $86.10 and it is likely to pay a $5.10 dividend next year. Since analysts estimate the company will have a 10% growth rate, what is its expected return?

Solution

Expected return=(D1/Current price)+Growth rate

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=(5.1/86.1)+0.1

=15.92%