A stock is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely. If the stock has a dividend yield of 5.7 percent, what is the required return on the stock

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Business

Nico Huerta

23 March, 22:23

A stock is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely. If the stock has a dividend yield of 5.7 percent, what is the required return on the stock

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Answers (1)

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Mckinley Hammond · Answer 1

Answer: 10.1%

Explanation:

The required rate of return on a stock is the minimum return on a stock that an investor is going to accept for owning that particular stock, as compensation for the risk that is associated with the stock.

From the question, we are told that a stock is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely and that the stock has a dividend yield of 5.7 percent. The required return on the stock will be the addition of the growth and. The dividend yield. This will be:

= 4.4% + 5.7%

= 10.1%