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22 February, 04:14

Lotsa Lenses paid a dividend of $1.17 last year and plans a dividend growth rate of 3.70% indefinitely. Lotsa's stock price is now $14.44. What return can Lotsa Lenses' investors expect on their stock?

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  1. 22 February, 04:56
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    12.10%

    Explanation:

    Given that,

    Dividend paid last year = $1.17

    Dividend growth rate = 3.70%

    Stock price = $14.44

    Dividend for the next period:

    = Dividend paid last year * (1 + Dividend growth rate)

    = $1.17 * (1 + 0.037)

    = $1.17 * 1.037

    = $1.21329

    Return expected:

    = (Dividend for the next period : Current price) + Growth rate

    = ($1.21329 : $14.44) + 0.037

    = 0.0840 + 0.0370

    = 8.40% + 3.70%

    = 12.10% (Approximately)
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