A firm's stock is expected to pay a $3 annual dividend next year, the current stock price is $60, and the expected growth rate in dividends is 8%.Using the Gordon approach, what is the expected return?

Question

Quizplus · Accepted Answer

The Gordon approach formula is:

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

Plugging in the given values, we get:

Expected Return = (3/60) + 0.08 = 0.05 + 0.08 = 0.13

Therefore, the expected return is 13% and the best choice is D.

A Firm's Stock Is Expected to Pay a $3 Annual