The common stock of Dayton Repair sells for $43.19 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 2.15 percent annually and expects to continue doing so. What is the market rate of return on this stock? 7.59 percent 7.43 Percent 76.7 percent 7.14 percent 7.28 percent

It is 7.43 Percent

Explanation:

Market rate of return (MRR) is simply the minimum return that can be accepted to invest and hold a risky asset of any company. This can be estimated using the following formula:

MRR = Dividend payment expected/Price of share) + forcasted dividend growth rate

MRR = ($2.28/$43.19) + 0.0215 = 0.0528 + 0.0215 = 0.0743 = 7.43 percent

This shows that stock's market rate of return is 7.43 percent.

7.43 Percent

Explanation:

Market rate of return (MRR) for a stock refers to the return considered by an investor as the least acceptable to him to own the stock of a company in order to compensate him for a specified risk level related to holding the stock.

The formula for calculating the MRR is given as follows:

MRR = (EDP : SP) + FDGR ... (1)

EDP = Expected dividend payment = $2.28

SP = Share Price = $43.19

DGRF = Dividend growth rate forecast = 2.15% = 0.0125

Substituting the figures above into equation (1), we have:

MRR = ($2.28 : $43.19) + 0.0215

= 0.0527899976846492 + 0.0215

= 0.0742899976846492

= 0.0743 approximately

MRR = 7.43 percent

Therefore, the market rate of return on this stock is 7.43 percent.