Problem 7-15 Return on Common Stock You buy a share of The Ludwig Corporation st
ID: 2710695 • Letter: P
Question
Problem 7-15
Return on Common Stock
You buy a share of The Ludwig Corporation stock for $20.80. You expect it to pay dividends of $1.02, $1.14, and $1.2741 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $31.78 at the end of 3 years.
Calculate the growth rate in dividends. Round your answer to two decimal places.
%
Calculate the expected dividend yield. Round your answer to two decimal places.
%
Assuming that the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to obtain the expected total rate of return. What is this stock's expected total rate of return? Round your answer to two decimal places.
%
Explanation / Answer
Dividend growth rate =( (increase in dividend over previous) -1)*100
Dividend yield = dividend/ price
Total growth = dividend yield + Dividend growth rate
Time Dividend Dividend growth rate Price Dividend yield Total growth 0 20.8 1 1.02 2 1.14 11.76470588 3 1.2741 11.76315789 31.78 4.009125 15.77228