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The common stock of Sweet Treats is selling for $45.65 per share. The company is expected to have an annual dividend increase of 2.6 percent indefinitely and pay a dividend of $3.30 in one year. What is the total return on this stock

Respuesta :

Answer:

9.83%

Explanation:

The computation of the total return on the stock is shown below:

As we know that

Share price = Next year dividend ÷ (Required rate of return -  growth rate)

$45.65 = $3.30 ÷ (Required rate of return - 2.6%)

Let us assume the required rate of return be X

So,

$45.65 × X - 1.1869 = $3.30

$45.65  × X = $3.30 + $1.1869

So, the X is 9.83%

Hence, the total return on the stock is 9.83%

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