Question
You buy a share of The Ludwig Corporation stock for $18.90. You expect it to pay dividends of $1.10, $1.572, and $51.2174 in Years 1,
You buy a share of The Ludwig Corporation stock for $18.90. You expect it to pay dividends of $1.10, $1.572, and $51.2174 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $21.88 at the end of 3 years.
A - Calculate the growth rate in dividends. Round your answer to two decimal places.%
B - Calculate the expected dividend yield. Round your answer to two decimal places.%
C - Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock's expected total rate of return (assume market is in equilibrium with the required rate of return equal to the expected return)? Do not round intermediate calculations. Round your answer to two decimal places.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
A The most basic equation is Growth ROE 1 payout ratio Eg if the company pays 40 of its earnings as dividends and its ROE 15 then its growth will be 1...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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