Ask Question
31 October, 08:21

Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.05 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $28.00 per share, what is the expected rate of return?

+4
Answers (1)
  1. 31 October, 12:06
    0
    The expected rate of return is 14.29%.

    Explanation:

    The re-arranged equation of DDM for Expected Rate of Return is given below:

    Expected Rate = (Next Year Dividend / Current Stock Price) + Growth Rate

    where

    Next Year Dividend is Current Year Dividend * (1 + growth rate)

    ⇒ Next Year Dividend = 2.05 * (1 + 6.50%) = $2.18.

    All the other values are given in the question. Simply put those values in the equation:

    ⇒ Expected Rate of Return = (2.18 / 28) +.065 =.1429 = 14.29%.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.05 at the end of the year. Its dividend is ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers