Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return

The market rate of return is 14.6%

Explanation:

In this question, we are asked to calculate the market rate of return for a stock having a particular selling rate at present.

Mathematically, the market rate of return =

[Current dividend * (1+growth rate)]/current stock price + growth rate

From the question, we identify the following;

Current dividend = $2.80

Growth rate = 3.8% = 0.038

Current price of stock = $26.91

We plug this values in the equation and we have the following;

Market rate of return = [$2.80 * (1+0.038)]/26.91 + 0.038 = [(2.8*1.038)/26.91] + 0.038 = 0.108 + 0.038 = 0.146 or 14.6%