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.

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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.