ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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**Problem Statement: Calculating the Stock's Expected Total Return**

Given the following information:

- Dividend (D1) = $1.25
- Growth rate (g) = 5.5% (constant)
- Current stock price (P0) = $44

Question: What is the stock's expected total return for the coming year?

**Explanation:**

To calculate the stock's expected total return, you can use the formula:

\[
\text{Expected Total Return} = \frac{D1}{P0} + g
\]

Where:
- \(\frac{D1}{P0}\) represents the dividend yield.
- \(g\) is the growth rate.

By substituting the given values:

1. Calculate the dividend yield: \(\frac{1.25}{44}\)
2. Add the growth rate of 5.5% to the dividend yield obtained in step 1.

This will provide you with the stock's expected total return for the coming year.
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Transcribed Image Text:**Problem Statement: Calculating the Stock's Expected Total Return** Given the following information: - Dividend (D1) = $1.25 - Growth rate (g) = 5.5% (constant) - Current stock price (P0) = $44 Question: What is the stock's expected total return for the coming year? **Explanation:** To calculate the stock's expected total return, you can use the formula: \[ \text{Expected Total Return} = \frac{D1}{P0} + g \] Where: - \(\frac{D1}{P0}\) represents the dividend yield. - \(g\) is the growth rate. By substituting the given values: 1. Calculate the dividend yield: \(\frac{1.25}{44}\) 2. Add the growth rate of 5.5% to the dividend yield obtained in step 1. This will provide you with the stock's expected total return for the coming year.
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