ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?
A) 10 percent
B) 11 percent
C) 4 percent
D) 5 percent

Question

Quizplus · Accepted Answer

The required return for a stock can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetually growing dividend), which is given by Required Return = Dividend Yield + Growth Rate. In this case, it's 3% (Dividend Yield) + 7% (Growth Rate) = 10%.

ABC Inc Has a Dividend Yield Equal to 3 Percent and and Is