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The common stock of Sweet Treats is selling for \( \$ 55.55 \) per share. The company is expected to have an annual dividend increase of 3.5 percent indefinitely and pay a dividend of \( \$ 4.40 \) in one year. What is the total return on this stock? a. \( 12.87 \% \) b. \( 12.87 \% \) c. \( 12.14 \% \) d. \( 11.70 \% \) e. \( 11.42 \% \)

Ask by Hardy Mcfarlane. in the United States
Mar 12,2025

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The total return on the stock is approximately 11.42%.

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The Deep Dive

To find the total return on the stock, you can use the formula for total return, which includes both the dividend yield and the growth rate of the dividend. The dividend yield can be calculated as follows: \[ \text{Dividend Yield} = \frac{\text{Dividend}}{\text{Price}} = \frac{4.40}{55.55} \approx 0.0792 \text{ or } 7.92\% \] Next, you add the expected growth rate of the dividend: \[ \text{Total Return} = \text{Dividend Yield} + \text{Growth Rate} = 7.92\% + 3.5\% = 11.42\% \] Therefore, the total return on this stock is \( \text{e. } 11.42\% \).

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