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25 July, 04:11

Groupong Inc. recently paid a $2.78 annual dividend on its common stock. This dividend increases at 3.50 percent per year and the stock currently sells for $38.30 a share. What is the rate of return? A. 15 percent B. 17 percent C. 11 percent D. 13 percent

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  1. 25 July, 06:27
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    c) 11%

    Explanation:

    The question is to determine the rate of return on Groupong Inc's

    The rate of return represents an investment's net gain or net loss calculated over a period of time and usually expressed in terms of the percentage of the initial cost of investment.

    The rate of return in this question is calculated as follows:

    Rate of Return = (The Dividend for the next year / the current price of the share) + The Growth rate

    The dividend for the next year = current year dividend x (1+r), where r is 3.5

    = 2.78 x (1+0.035)

    =2.78 x 1.035

    = (2.8773/38.3) + 0.035

    =0.1101 or 11%
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