Martha's Vineyard recently paid a €3.60 annual dividend on its ordinary equity.This dividend increases at an average rate of 3.5% per year.The share is currently selling for €62.10.What is the market rate of return?

Question

Quizplus · Accepted Answer

To calculate the market rate of return, we need to use the dividend discount model, which is: 
Market Rate of Return = (Dividend/Current Stock Price) + Dividend Growth Rate

Using the information given in the question, we have: 
Dividend = €3.60 
Current Stock Price = €62.10 
Dividend Growth Rate = 3.5%

Market Rate of Return = (3.60/62.10) + 0.035 = 0.064 or 6.4%

Therefore, the closest option to the calculated market rate of return is E, 9.5%. However, none of the given options match the actual market rate of return. It's possible that the question has a typo, or the answer choices are flawed.

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