Question

(Common stockholder expected return ) Ziercher executives anticipate a growth rate of 11 percent for the company's common stock. The stock is currently selling for $39.64 per share and pays an end-of-year dividend of $1.29. What is your expected rate of return if you purchase the stock for its current market price of $39.64 ?

answer in excel please

Answer 1

Calculate the expected rate of return as follows:

Price = Expected dividend / ( Expected rate - Growth rate)

39.64= $1.29 / (Expected rate - 11%)

Expected rate = (1.29/$39.64) + 11%

= 14.25%

Therefore, the expected rate of return is 14.25%.

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Alternative method:

Calculate the expected rate of return as follows:

Formulas: