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The common stock of Eddie's Engines, Inc., sells for $45.08 a share. The stock is expected to pay a dividend of $3.50 per share next year. Eddie's has established a pattern of increasing their dividends by 5.6 percent annually and expects to continue doing so. What is the market rate of return on this stock

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Answer:

13.6%

Explanation:

D1 = $3.50

Current price for share = $45.08

Growth Rate = 5.6%

Market return = (D1 / Current price) + growth rate

Market return = ( 3.5/45.08) + 0.056

Market return = 0.1336 x 100

Market return = 13.36%

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