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6-If you purchase Large Oil, Inc. for $36 and the firm pays a $3.00 annual dividend...

6-If you purchase Large Oil, Inc. for $36 and the firm pays a $3.00 annual dividend which you expect to grow at 7.5 percent, what is the implied annual rate of return on your investment? please provide formula and answer

Solutions

Expert Solution

Given:

Stock price = $36

Dividend = $3

Growth rate = 7.5% or 0.075

Rate of Return = Dividend * (1 + growth rate)/ stock price + Growth rate

= $3 * (1 + 0.075) /36 + 0.075

= 3.225 / 36 + 0.075

= 0.08958 + 0.075

= 0.16458 or 16.458%

jeff jeffy answered 2 years ago
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