Annual rate of return can the investor expect to obtain

Assignment Help Financial Management

Reference no: EM13724147

The wall street journal reported that yesterday dow chemical Co. closed at $62 per share. Based on the last 12 months, DOW had a P/E ratio of 11 and a dividend per share of $1.40. Earnings are expected to grow at an 8% compound rate. Since DOW recently raised their dividend, they are not expected to change their dividend during the next 2 years. However, for the third year they will raise their dividend to a 36% payout ratio based on earnings for year 3. With anticipated improved market conditions, the P/E ratio at the end of the third year is expected to be 14.2

A) If an investor purchased DOW at $62 and holds it for 3 years before selling, what percent annual rate of return can the investor expect to obtain?

B) The rate of return calculated in part (A) is composed of returns due to the dividends and price appreciation ( Captial gain). What is the rate of return due to dividends and the rate of return due to price appreciation?

Reference no: EM13724147

Questions Cloud

What is the philosophy or approach to art : What is the philosophy or approach to art that is defined by the -ism. How is this philosophical underpinning of the style of movement visually reflected in your example?

Create labor relations strategies for organization : There are four schools of thought that help HR professionals understand how to create labor relations strategies for their organization. Each school of thought listed below has a different view on labor unions.

Explain the various laws and regulations : Question 1: Explain the various laws and regulations that regulate compensation and benefits, such as the Fair Labor Standards Act and others.

Calculate the beta coefficient for a common stock : You have been asked to calculate the beta coefficient for a common stock. Discuss what specific data you would collect and what calculations are necessary to obtain the beta coefficient?

Annual rate of return can the investor expect to obtain : The wall street journal reported that yesterday dow chemical Co. closed at $62 per share. Based on the last 12 months, DOW had a P/E ratio of 11 and a dividend per share of $1.40. Earnings are expected to grow at an 8% compound rate. Since DOW recent..

An externally acquired innovative techology : What factors must be considered when implementing an externally acquired innovative techology?

What is the fair price today for each share of common stock : The Xerox Company paid a $3.00 dividend per share on its common stock this past year. This dividend represented a 40% payout ratio. Dividends are expected to grow at a 6% annual compound growth rate while earnings are expected to grow at a 10% growth..

How does hochschild describe william sheppard : How does Hochschild describe William Sheppard? Sheppard was not necessarily a great missionary, but his life in Africa was exciting, local Africans liked him, and he succeeded at doing lots of cool things.

Functions of the universitys library electronic database : Develop a unit test plan for key functions of the university's library electronic database.

User Account

All Pages