The common stock of Sweet Treats is selling for per share. The company is
expected to have an annual dividend increase of 3.5 percent indefinitely and pay a dividend
of in one year. What is the total return on this stock?
a.
b.
c.
d.
e.

Ask by Hardy Mcfarlane. in the United States

Mar 12,2025

Question

The common stock of Sweet Treats is selling for per share. The company is
expected to have an annual dividend increase of 3.5 percent indefinitely and pay a dividend
of in one year. What is the total return on this stock?
a.
b.
c.
d.
e.

Ask by Hardy Mcfarlane. in the United States

Mar 12,2025

UpStudy AI · Accepted Answer

We are given:
- Current price, $$ P_0 = \$55.55 $$
- Dividend in one year, $$ D_1 = \$4.40 $$
- Constant growth rate, $$ g = 3.5\% = 0.035 $$

The dividend discount model (Gordon Growth Model) gives the required return $$ r $$ as:
$$
r = \frac{D_1}{P_0} + g
$$

**Step 1: Compute the dividend yield.**
$$
\frac{D_1}{P_0} = \frac{4.40}{55.55} \approx 0.0792 \quad \text{or } 7.92\%
$$

**Step 2: Add the growth rate.**
$$
r = 0.0792 + 0.035 = 0.1142 \quad \text{or } 11.42\%
$$

Thus, the total return on the stock is approximately $$11.42\%$$.

The correct answer is:

$$ \textbf{e. } 11.42\% $$
The total return on the stock is approximately 11.42%.