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9 June, 10:29

If d0 = $1.75, g (which is constant) = 3.6%, and p0 = $40.00, what is the stock's expected total return for the coming year?

a. 8.13%

b. 7.48%

c. 7.64%

d. 9.92%

e. 6.42%

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Answers (1)
  1. 9 June, 13:55
    0
    The answer is "a. 8.13%".

    Explanation:

    Given that;

    d0 = $1.75

    p0 = $40.00

    g = 3.6% = 0.036

    By using the formula;

    Price of the stock = (Dividend this year) (1+g) : (r - g)

    By putting the values;

    40 = (1.75) (1+0.036) : (r - 0.036)

    r - 0.036 = (1.75) (1.036) : 40

    r - 0.036 = 1.813 : 40

    r - 0.036 = 0.045325

    r = 0.045325 + 0.036

    r = 0.081325 = 0.081325 x 100

    r = 8.13%
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