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common stock sells for $29.37 a share. The stock is expected to pay $2.45 per share...

common stock sells for $29.37 a share. The stock is expected to pay $2.45 per share next year when the annual dividend is distributed. The firm established a pattern of increasing its dividends by 1.5 percent annually and expects to continue doing so. What is the market rate of return on this stock?

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Answer #2

Given :


P0 = 29.37 ($)

D1 = 2.45 ($)

g = 1.5 % = 0.015



Now,


Dividend yield = D1/P0 

= 2.45/29.37

= 0.0834


Market rate of return, r 

= Dividend yield + g

= 0.0834 + 0.015

= 0.0984

= 9.84 % (ANSWER)


answered by: Tulsiram Garg
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Answer #1

market rate of return=(D1/Current price)+Growth rate

=(2.45/29.37)+0.015

which is equal to

=9.84%(Approx).

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