What is the required rate of return on a stock with a $2.50 expected dividend and a $19 price with 6% growth?

4 problems | Business & Finance homework help

The required rate of return on a stock with a $2.50 expected dividend, a $19 price, and 6% growth can be calculated as follows:

Required Rate of Return = Dividend Yield + (Capital Gain Yield x Growth Rate)

Dividend Yield = 2.50/19 = 0.1316

Capital Gain Yield = (19-2.50)/19 = 0.8684

Required Rate of Return = 0.1316 + (0.8684 x 0.06)
= 0.1563 or 15.63%