Currently a share of stock is paying a dividend​ (cash payout C​) of ​$4.00 to be paid in exactly one year and has a known selling price in one year ​(P) of ​$25.00. The expected return​ (R) of similar assets is 8.0​%, and the current market price is​ $24.00. What is the total rate of return ​(R*) on this​ asset? 
The total rate of return is 
  
enter your response here​%. ​(Round your response to one decimal place.​)
Part 2
Based on this​ information, you would expect the price of this stock to 
▼ 
increase
decrease
remain unchanged
.

To find the total rate of return $ R^* $ on the stock, we use the formula for the total rate of return, which combines the expected dividend yield and the capital gain (or loss):

\[
R^* = \frac{C + (P - P_0)}{P_0}
\]

Where:
- $ C $ is the dividend (cash payout), which is $4.00,
- $ P $ is the price of the stock in one year, which is $25.00,
- $ P_0 $ is the current market price, which is $24.00.

Now, calculate $ R^* $:

\[
R^* = \frac{4.00 + (25.00 - 24.00)}{24.00} = \frac{4.00 + 1.00}{24.00} = \frac{5.00}{24.00} \approx 0.2083
\]

To express this as a percentage:

\[
R^* \times 100 = 20.83\%
\]

Rounding to one decimal place:

\[
R^* = 20.8\%
\]

### Part 2:
Based on the information given, the expected return $ R $ of similar assets is 8.0%, but the total rate of return on this stock is 20.8%. Since the stock is offering a higher return than comparable assets, investors would likely buy more of it, increasing demand. Thus, **the price of the stock is expected to increase**.

### Final Answers:
1. The total rate of return $ R^* $ is **20.8%**.
2. Based on this information, you would expect the price of this stock to **increase**.

---

Would you like further explanation on how the formula works or any specific detail? Here are some related questions:

1. How do dividends affect a stock's total rate of return?
2. What is the significance of expected return in stock valuation?
3. How does an increase in expected return impact stock price?
4. What factors influence a stock's dividend yield?
5. How do you calculate the future value of a stock?

**Tip:** The total rate of return considers both income (dividends) and capital gains (price appreciation), giving a complete picture of an investment's performance.

Currently a share of stock is paying a dividend​ (cash payout C​) of ​$4.00 to be paid in exactly one year and has a known selling price in one year ​(P) of ​$25.00. The expected return​ (R) of similar assets is 8.0​%, and the current market price is​ $24.00. What is the total rate of return ​(R*) on this​ asset? The total rate of return is __%. (Round your response to one decimal place.​) Part 2: Based on this​ information, you would expect the price of this stock to increase, decrease, or remain unchanged.

Discover how to calculate the total rate of return for a stock paying a $4.00 dividend with a future selling price of $25.00. This guide provides step-by-step instructions, using key finance concepts such as dividend yield, capital gain, and the total return formula. Ideal for undergraduate students in finance or business courses.

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