An issue of common stock currently sells for $52

Finance Dec 15, 2020

An issue of common stock currently sells for $52.00 per share, has an expected annual dividend to be paid at the end of the year of $0.90 per share, and has an expected growth rate to infinity of 5.00% per year. The expected rate of return on this security is:

Expert Solution

Computation of Expected Rate of Return on the Security:

Expected Rate of Return = Expected Dividend/Current Stock Price + Growth Rate

= $0.90/$52 + 5%

= 1.73% + 5%

Expected Rate of Return = 6.73%

Thus the expected rate of return on this security is = 6.73 %

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