The annual dividends paid by a certain stock are expected to grow at 3.5 percent per year forever. The required return on the stock is 13.5 percent, and the current stock price is $24.40. You own 300 shares of this stock, what is the total amount of dividend income you should expect next year?

Question

Quizplus · Accepted Answer

First, we need to calculate the expected dividend per share next year:

Expected Dividend Next Year = Dividend this year * (1 + Growth Rate) 
= $0.00 * (1 + 0.035) 
= $0.00

Next, we need to calculate the expected stock price at the end of the year:

Expected Stock Price = Current Stock Price * (1 + Required Return) 
= $24.40 * (1 + 0.135) 
= $27.69

Finally, we can calculate the expected total dividend income:

Total Dividend Income = Expected Dividend Next Year * Number of Shares 
= $0.00 * 300 
= $0.00

Thus, the total amount of dividend income you should expect next year is $732 (Option C).

The Annual Dividends Paid by a Certain Stock Are Expected