A company's current stock price is $50.00 and its most recent dividend was $1.00 per share. Since analysts estimate the company will have a 5 percent growth rate, what is its expected return?
A) 2.20 percent
B) 5.02 percent
C) 7.00 percent
D) 7.10 percent

Question

Quizplus · Accepted Answer

The expected return can be calculated using the dividend discount model (also known as the Gordon growth model) formula: Expected Return = (Dividend/Current Price) + Growth Rate. Plugging in the values: (1/50) + 0.05 = 0.02 + 0.05 = 0.07 or 7.00 percent.

A Company's Current Stock Price Is $50