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.](https://content.bartleby.com/qna-images/question/0c12b0d1-7ded-4bb5-9f1d-3bec03db509e/8ae4a6cc-08a6-479b-94c4-507959ba5624/wgdghtp_processed.jpeg)
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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