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19 November, 12:23

Managed Healthcare's current stock price is $25, its next per share dividend (assumed to be paid annually) is forecasted to be $1.00, and analysts expect the company to grow at a constant annual rate of 10 percent. What is the stock's expected rate of return?

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  1. 19 November, 12:51
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    Stock's expected rate of return is 14%

    Explanation:

    Data provided in the question:

    Current stock price = $25

    Next Dividend, D1 = $1.00

    Annual growth rate, g = 10% = 0.10

    Now,

    Expected Rate of Return = [ D1 : Current Stock Price ] + g

    = [ $1.00 : $25 ] + 0.10

    = 0.04 + 0.10

    = 0.14

    or

    = 0.14 * 100%

    = 14%

    Hence,

    stock's expected rate of return is 14%
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