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8 March, 07:44

Last year, when the stock of Alpha Minerals was selling for $49.50 a share, the dividend yield was 3.4 percent. Today, the stock is selling for $41 a share. What is the total return on this stock if the company maintains a constant dividend growth rate of 2.2 percent?

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  1. 8 March, 11:15
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    Total return on this stock is 0.06395 or 63.95%

    Explanation:

    Calculating the total return

    P₀ = [D₀ * (1 + g) ] / [r - g]

    $41 = [ ($49.50 * 3.4%) * (1 + 2.2%) ] / [r - 2.2%]

    $41 * [r - 0.022] = [ (49.50 * 0.034) * (1 + 0.022) ]

    $41 * [r - 0.022] = [ (1.683) * (1.022) ]

    $41 * [r - 0.022] = 1.720026

    r - 0.022 = 1.720026 / 41

    r - 0.022 = 0.04195

    r = 0.04195 + 0.022

    r = 0.06395‬

    In percentage; r = 63.95%
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