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Paychex Inc. (PAYX) recently paid a dividend of $0.84. The dividend is expected to grow at a 10 percent rate. The current stock price is $49.71. What is the return shareholders are expecting?

Respuesta :

Answer:

The correct answer is 11.85%.

Explanation:

According to the scenario, the computation of the given data are as follows:

Current price = $49.71

Dividend paid = $0.84

Growth rate = 10%

So, Next year Dividend = $0.84 × 110% = $0.92

So, we can calculate the return by using following formula:

Return on stock = (Next year Dividend ÷ Current price ) + Growth rate

= ( $0.92 ÷ $49.71 ) + 0.10

= 11.85%