Question

The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock? Multiple Choice 4.84 percent 6.41 percent 9.92 percent 6.14 percent

Answer 1

Answer:

Option (b) is correct.

Explanation:

Given that,

Common stock of Dayton Repair sells for = $47.92 a share

stock is expected to pay = $2.28 per share next year

Growth rate of dividend = 1.65%

Rate of return:

= (Expected price of stock next year ÷ Selling price of Dayton repair common stock) + Growth rate of dividend

= ($2.28 ÷  $47.92) + 0.0165

= 0.0641 or 6.41%