American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The dividend is expected to grow at a 15.5 percent rate. At the current stock price of $24.07, what is the return shareholders are expecting?

Question

Quizplus · Accepted Answer

The expected return can be calculated using the Gordon Growth Model: Expected Return = (Dividend/Price) + Growth Rate = ($0.38/$24.07) + 0.155 = 0.0158 + 0.155 = 0.1732 or 17.32 percent.

American Eagle Outfitters (AEO) Recently Paid a $0