What rate of return is expected from a stock that sells for $30 per share, pays $1.50 annually in dividends, and is expected to sell for $33 per share in one year?
Question
What rate of return is expected from a stock that sells for 1.50 annually in dividends, and is expected to sell for $33 per share in one year?
Solution
The rate of return on a stock can be calculated using the following formula:
Rate of Return = (Dividends + (Selling Price - Purchase Price)) / Purchase Price
Here's how to calculate it:
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First, calculate the difference between the selling price and the purchase price. In this case, it's 30 = $3.
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Next, add the dividends to this difference. In this case, it's 1.50 = $4.50.
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Finally, divide this sum by the purchase price and multiply by 100 to get the rate of return as a percentage. In this case, it's (30) * 100 = 15%.
So, the expected rate of return from this stock is 15%.
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