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Managed Healthcare’s current stock price is $25, its next per share dividend (assumed to be paid annually) is forecasted to be $1.00, and analysts expect the company to grow at a constant annual rate of 10 percent. What is the stock’s expected rate of return?

Respuesta :

Answer:

Stock’s expected rate of return is 14%

Explanation:

Data provided in the question:

Current stock price = $25

Next Dividend , D1 = $1.00

Annual growth rate, g = 10% = 0.10

Now,

Expected Rate of Return = [ D1 ÷ Current Stock Price ] + g

=  [ $1.00 ÷ $25 ] + 0.10

= 0.04 + 0.10

= 0.14

or

= 0.14 × 100%

= 14%

Hence,

stock’s expected rate of return is 14%

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