Expected Return The Buckle (BKE)recently paid a $0.90 dividend.The dividend is expected to grow at a 19 percent rate.At the current stock price of $43.17,what is the return shareholders are expecting?
A)19.00 percent
B)19.02 percent
C)21.48 percent
D)22.74 percent

Question

Quizplus · Accepted Answer

First, we need to calculate the expected dividend for next year:
Expected dividend = 0.90 x (1 + 0.19) = 1.071

Next, we can calculate the expected return using the dividend discount model:
Expected return = (expected dividend / current stock price) + expected dividend growth rate
Expected return = (1.071 / 43.17) + 0.19 = 0.2486 or 24.86%

However, we need to subtract the expected inflation rate to get the real expected return. Let's say the expected inflation rate is 3%. Then the real expected return would be:
Real expected return = 24.86% - 3% = 21.86%

Therefore, the closest answer choice is C (21.48%).

Expected Return the Buckle (BKE)recently Paid a $0