An issue of common stock is expected to pay a dividend of $3 at the end of the year. Its growth rate is equal to 3%, and the current share price is $40. What is the required rate of return on the stock?
A) Between 7% and 10%
B) Between 10% and 12%
C) Between 12% and 14%
D) Between 14% and 17%

Question

Quizplus · Accepted Answer

K_e = (D₁ / P_O) + g = ($3.00 / $40.00) + 0.03 = 10.5%

An Issue of Common Stock Is Expected to Pay a Dividend