Which of the following statements is correct about a stock currently selling for $50 per share that has a 16 percent expected return and a 10 percent expected capital appreciation?
A)its expected dividend exceeds the actual dividend
B)its expected return will exceed the actual return
C)it is expected to pay $3 in annual dividends
D)it is expected to pay $8 in annual dividends

Question

Quizplus · Accepted Answer

The expected return is the sum of dividend yield and capital appreciation. If the expected return is 16 percent and the expected capital appreciation is 10 percent, then the expected dividend yield must be 6 percent (16% - 10% = 6%). If the stock is currently selling for $50 per share, then the expected annual dividend would be $3 per share ($50 x 6% = $3). Therefore, option C is correct. Option A is incorrect as the expected dividend is less than the actual dividend. Option B is incorrect as the expected return is given as 16 percent, which is also the actual return in this case. Option D is incorrect as the expected dividend is $3 and not $8.

Which of the Following Statements Is Correct About a Stock