Alberta Oil Inc.(AOI) pays an annual dividend of $2 per share.If AOI's stock is currently trading at $57 per share,and AOI's expected growth rate is 4%,what is AOI's expected return?

Question

Quizplus · Accepted Answer

The expected return of a stock can be calculated using the dividend discount model (DDM), which is:

Expected Return = (Annual Dividend/Stock Price) + Expected Growth Rate

Using the values given in the question, we can calculate AOI's expected return as:

Expected Return = (2/57) + 0.04 = 0.035 + 0.04 = 0.075 or 7.50%

Therefore, the correct choice is A) 7.50%.