The Problem is This: Dunk City pays a constant annual dividend of $3.00 a share and currently sells for $53 a share. What is the Rate of Return.
Once again, we are going to be using the basic, Dividend Yield equation in order to solve for this question, this time solving for the letter R, instead of the Dividend Yield. Formula is below:
How to Solve This Financial Math Equation
R = D1/P0 + G is the way to solve this equation. We are given the following variables;
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D1 = $3.00 a share
P0 = $53 a share.
G = 0% (There is no growth rate mentioned. In financial academics, when this is the case, it is assumed that G = 0.)
And now we solve.
R = 3/53
In this case, R = .0566, which is a 5.67% Rate of Return for this problem.
R = 5.67% => Answer
This is a relatively easy financial problem, and typically would be shown around mid-way through the semester of a classic Business Finance Course. I struggled quite a bit with this class, but now I have literally gone so far in the field of finance that I could basically teach the task. Hope you enjoyed the blog post, more college homework help coming your way on this website!
Cheers!
*Inflation Hedging.com
Sources:
https://www.bankrate.com/banking/cds/cd-rates/
https://money.cnn.com/data/markets/
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