Alberta Inc.(AI) pays an annual dividend of $4 per share.If AI's stock is currently trading at $75 per share,and AI's expected growth rate is 4%,what is AI's expected return?

Question

Quizplus · Accepted Answer

The expected return can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity) formula: Expected Return = (Dividend per Share / Price per Share) + Growth Rate. Plugging in the values: Expected Return = ($4 / $75) + 4% = 5.33% + 4% = 9.33%.