Ivonne has bought shares of RIO, Inc.stock for $25.00 per share.She expects a 1.00 dividend at the end of this year.After 2 years, she expects to receive a dividend of $1.25 and to sell the stock for $28.75.What is Ivonne's required rate of return?

Question

Quizplus · Accepted Answer

To calculate the required rate of return, we can use the formula:

Expected future cash flows / initial investment = (dividend + price at end of period) / price at beginning of period

Plugging in the numbers, we get:

(1.00 + 1.25 + 28.75) / 25.00 = 1 + R
R = 11.6%

Therefore, Ivonne's required rate of return is 11.6%, which is closest to answer choice B.

Ivonne Has Bought Shares of RIO, Inc