Bet'R Bilt Bikes just announced that their annual dividend for this coming year will be $1.42 a share and that all future dividends are expected to increase by 2.5% annually.What is the market rate of return if this stock is currently selling for $14.20 a share?

Question

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The market rate of return can be calculated using the Gordon Growth Model (Dividend Discount Model): Market Rate of Return = (Dividend per share / Current stock price) + Growth rate = ($1.42 / $14.20) + 0.025 = 0.125 or 12.5%.

Bet'R Bilt Bikes Just Announced That Their Annual Dividend for This