Answer: 10.13%

**Explanation:** This is an H-model problem where we need to solve for the expected return (r) given the current stock price and dividend growth assumptions. **Given:** - P₀ = $75.00 - D₀ = $2.50 - gₛ = 12% (initial growth rate) - gₗ = 6% (long-term growth rate) - H = 3 years (half of the 6-year transition period) **H-model formula:** P₀ = [D₀ × (1 + gₗ)] / (r - gₗ) + [D₀ × H × (gₛ - gₗ)] / (r - gₗ) We need to solve for r: 75 = [2.50 × (1 + 0.06)] / (r - 0.06) + [2.50 × 3 × (0.12 - 0.06)] / (r - 0.06) 75 = [2.65] / (r - 0.06) + [2.50 × 3 × 0.06] / (r - 0.06) 75 = [2.65] / (r - 0.06) + [0.45] / (r - 0.06) 75 = [3.10] / (r - 0.06) Solving for r: 75(r - 0.06) = 3.10 75r - 4.50 = 3.10 75r = 7.60 r = 7.60 / 75 = 0.1013 or 10.13% Therefore, the expected rate of return is closest to 10.13%.

Author: LeetQuiz Editorial Team