The company's preferred stock just yesterday paid a dividend of $4.50 per share. Today's share price is $48.40. You believe the discount rate for this stock is 7.8%. Your strategy is to buy the stock today and receive annual dividends for 5 years. Upon receiving the last dividend, you expect the price will converge to its price predicted by the dividend growth model. Your strategy is to sell the stock at that price at that time. Compute the expected annual rate of return for the strategy.

Answer rating: 100% (QA)

To compute the expected annual rate of return for the investment strategy in the preferred stock we ... View the full answer