Answer:
Option (b) is correct.
Explanation:
Given that,
D0 = $2.25
g (which is constant) = 3.5%
P0 = $50
Price = [D(1 + g)] ÷ Ke
Where,
Ke is the expected dividend yield for the coming year
$50 = [$2.25 × (1 + 0.035)] ÷ Ke
Ke = [$2.25 × (1 + 0.035)] ÷ $50
Ke = $2.32875 ÷ $50
= 4.66%
Therefore, the stock's expected dividend yield for the coming year will be 4.66%.
