The expected return on a common stock is equal to:
A) [(1 + dividend yield) × (1 + capital appreciation rate)] − 1.
B) the capital appreciation rate + dividend yield.
C) (1 + capital appreciation rate)/(1 + dividend yield).
D) the capital appreciation rate − dividend yield.

Question

Quizplus · Accepted Answer

The expected return on a common stock is the sum of its capital appreciation rate and dividend yield. Therefore, option B is the correct answer. Option A calculates the expected total return, but not the expected return. Option C divides the expected total return by 1 plus the dividend yield, which is not correct. Option D subtracts the dividend yield from the capital appreciation rate, which is incorrect as the two components should be added together to calculate the total expected return.

The Expected Return on a Common Stock Is Equal To