Which of the following statements is correct about a stock currently selling for $50 per share that has a 16% expected return and a 10% 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

To calculate the expected dividend, we can use the formula: expected dividend = (expected return - expected capital appreciation) * current stock price.
Therefore, expected dividend = (0.16 - 0.10) * $50 = $3. This means that the stock is expected to pay $3 in annual dividends. Option A is incorrect because the expected dividend is actually lower than the current dividend so it does not exceed it. Option B is incorrect because there is no indication that the actual return will be different from the expected return, so we cannot say that the expected return will exceed the actual return. Option D is incorrect because it is too high of a value.

Which of the Following Statements Is Correct About a Stock