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Lake Shore Vineyards recently paid a $4.20 annual dividend on their common stock. This dividend...

Question:

Lake Shore Vineyards recently paid a $4.20 annual dividend on their common stock. This dividend increases at an average rate of 4.2% per year. The stock is currently selling for $80.65 a share.

What is the market rate of return?

Dividend:

Dividend refers to the cash paid to the company to its shareholders over a certain period. In most cases, matured companies regularly pay their shareholder a dividend each period by virtue of their strong operating cash flow. On the other hand, growth stocks opted to an issued dividend to its shareholders as they will reinvest the proceeds, which would turn into stock price appreciation.

Answer and Explanation:

The market rate of return of the stock can be calculated using the following equation:

{eq}\begin{align*} Market~rate~of~return&=\dfrac{Dividend}{Stock~price}+Growth~rate\\ &=\dfrac{4.20}{80.65}+.042\\ &=.052+.042\\ &=.094 \end{align*} {/eq}

The market rate of return of the stock is 9.4%


Learn more about this topic:

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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