If d0 = $1.75, g (which is constant) = 3.6%, and p0 = $40.00, what is the stock's expected total return for the coming year?

a. 8.13%

b. 7.48%

c. 7.64%

d. 9.92%

e. 6.42%

The answer is "a. 8.13%".

Explanation:

Given that;

d0 = $1.75

p0 = $40.00

g = 3.6% = 0.036

By using the formula;

Price of the stock = (Dividend this year) (1+g) : (r - g)

By putting the values;

40 = (1.75) (1+0.036) : (r - 0.036)

r - 0.036 = (1.75) (1.036) : 40

r - 0.036 = 1.813 : 40

r - 0.036 = 0.045325

r = 0.045325 + 0.036

r = 0.081325 = 0.081325 x 100

r = 8.13%