Business Financial Management Practice Problem 11

Following is on the financial market and a firm whose stock you bought:

• Current risk free rate = 2.2%
• Current expected return on market = 10.6%
• Bought 1 share of the firm's stock for $48.50 one year ago, right after it paid its dividend
• Yesterday, company paid a dividend of $9/share
• Yesterday, firm also announced that it will increase the dividend by $3/share for each of the next 4 years and then never pay another dividend
• Based on yesterday's announcement, investors now believe that the systematic risk of the corporation is 20% greater than the overall risk of the stock market

You plan to sell your stock today. What is your holding period (%) return on your stock investment for the year?