Alberta Inc. (AI) pays an annual dividend of $1.34 per share. If AI's stock is currently...

Alberta Inc. (AI) pays an annual dividend of $1.34 per share. If AI's stock is currently trading at $21.39 per share, and AI's expected growth rate is 7%, what is AI's expected return?

Expert Solution

What is AI's expected return?

Answer: 13.26%

Working

Formula for calculating Expected return is as follows;

Expected return = (Expected Dividend ÷ Share price) + Growth rate

= ($1.34 ÷ $21.39) + .07

= 0.062646 + .07

= 0.132646

= 13.26%

Where,

Expected Dividend = Annual Dividend = $1.34 (provided in the question)

Share Price = $21.39 (provided in the question)

Growth rate = 7% (provided in the question)

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