What Is Your Rate of Return If You Invest $1,000

question 3

Multiple Choice

What is your rate of return if you invest $1,000 in a stock and it increases in value by $100 and pays an annual dividend of $50?

• A) 0%
• B) 5%
• C) 10%
• D) 15%

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Definitions:

Gordon Model

A method to determine the value of a stock by considering expected dividends, growth rate of these dividends, and the required rate of return.

Stock Pricing Models

Theoretical models used to determine the fair value of a stock based on future dividends, free cash flow, or other attributes of the company.

Gordon Model

A dividend discount model that values a stock by assuming a constant growth rate in dividends and discounting them back to their present value.

Market Return

The total return on an investment, including dividends and capital gains, as opposed to the annual return.