Question

The common stock of Eddie's Engines, Inc., sells for $45.08 a share. The stock is expected to pay a dividend of $3.50 per share next year. Eddie's has established a pattern of increasing their dividends by 5.6 percent annually and expects to continue doing so. What is the market rate of return on this stock

Answer 1

13.6%

Step-by-step explanation:

D1 = $3.50

Current price for share = $45.08

Growth Rate = 5.6%

Market return = (D1 / Current price) + growth rate

Market return = ( 3.5/45.08) + 0.056

Market return = 0.1336 x 100

Market return = 13.36%