GFX stock is currently paying dividend equal to 2% percent of its current market price.If you expect earnings to increase at an annual rate of 6%,the expected total return on the stock is

Question

Quizplus · Accepted Answer

The expected total return on the stock can be calculated as the sum of dividend yield and capital gains rate. Given that the dividend yield is 2%, we need to find the capital gains rate. The annual growth rate in earnings is a good indicator of the capital gains rate. Therefore, the expected capital gains rate is 6%. Thus, the expected total return is 2% (dividend yield) + 6% (capital gains rate) = 8%. Hence, the best choice is A) 8%.

GFX Stock Is Currently Paying Dividend Equal to 2% Percent