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Robert purchase stock for $20

Finance

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?

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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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