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14 March, 19:16

The common stock of BJ's Auto Clinic sells for $38.25 a share. The stock is expected to pay $1.90 per share next month when the annual dividend is distributed. BJ's has established a pattern of increasing their dividends by 2.5 percent annually and expects to continue doing so. What is the market rate of return on this stock?

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  1. 14 March, 22:57
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    The Market value of return on this stock is 7.47%

    Explanation:

    First, the expected dividend for the next year = $1.9

    The dividend's growth rate is 2.5%

    Based on this information, we can calculate the market rate of return on the stock as follows

    Market Rate of Return = (D1/P0) + g

    where P0 is the current market price @ 38.25

    D1 is the Dividend Expectd = $1.90

    g is the Growth rate of dividend @ 2.5%

    Using these and plugging them into the formula as follows:

    Market Rate of Return = ($1.90/$38.25) + 0.025

    = 0.074673

    = 7.47%
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Home » Business » The common stock of BJ's Auto Clinic sells for $38.25 a share. The stock is expected to pay $1.90 per share next month when the annual dividend is distributed. BJ's has established a pattern of increasing their dividends by 2.
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