Return on Common Stock You buy a share of The Ludwig Corporation stock for $19.4

Question

Return on Common Stock

You buy a share of The Ludwig Corporation stock for $19.40. You expect it to pay dividends of $1.07, $1.16, and $1.2576 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $28.27 at the end of 3 years.

Calculate the growth rate in dividends. Round your answer to two decimal places.
%

Calculate the expected dividend yield. Round your answer to two decimal places.
%

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? Round your answer to two decimal places.
%

Explanation / Answer

Growth Rate in dividend= 1.16-1.07/1.07*100=8.41%

Expected Dividend Yield = Annual Dividend/ Market Price of share

=1.2576/19.40*100=6.48%

Dividend Yield is 6.48%

Expected Total Rate of Return= Growth Rate+Dividend Yield

=8.41%+6.48%= 14.89%

Expected Total Return is 14.89%

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