Question

You buy a sharw of The Ludwig Corporation stock for $23.30. You expect it to pay dividends of $1.09, $1.1718, and $1.2597 in years 1,2, and 3, and you expect to sell it at a price of $28.95 at the end of 3 years .

Calculate the growth rate in dividends.

Calculate the expected dividend yeild.

Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is the stock's expected total rate of return (assume market is in equilibrium with the required rate of return equal to the expected return ?

Answer 1