Robert purchase stock for $20

Finance Nov 24, 2020

Robert purchase stock for $20. The expected dividend at end of the year is $2. Historically dividends have been growing by 8% per year and are expected to continue. How much is the dividend yield? How much is the expected growth in price? How much is the expected return?

Expert Solution

Dividend yield = Expected dividend / price
=$2/20
=10%

Expceted growth in price = growth rate =8%




Required rate of return = (Expected Dividend / Stock Price ) + Growth rate

= (2 / 20) + 0.08

= 0.1+0.08

=18 %

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