Answer:
14.6%
Explanation:
we can use the Gordon growth model to determine the market rate of return (or required rate of return for this stock or similar ones):
current stock price = dividend / (required rate of return - growth rate)
$26.91 = $2.9064 / (RRR - 3.8%)
RRR - 3.8% = $2.9064 / $26.91 = 10.8%
RRR = 10.8% + 3.8% = 14.6%
Answer:
The market rate of return is 14.6%
Explanation:
In this question, we are asked to calculate the market rate of return for a stock having a particular selling rate at present.
Mathematically, the market rate of return =
[Current dividend * (1+growth rate)]/current stock price + growth rate
From the question, we identify the following;
Current dividend = $2.80
Growth rate = 3.8% = 0.038
Current price of stock = $26.91
We plug this values in the equation and we have the following;
Market rate of return = [$2.80 * (1+0.038)]/26.91 + 0.038 = [(2.8*1.038)/26.91] + 0.038 = 0.108 + 0.038 = 0.146 or 14.6%
