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22 November, 01:03

Grateful Eight Co. is expected to maintain a constant 3.8 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.6 percent, what is the required return on the company's stock?

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  1. 22 November, 03:55
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    Answer: 0.094

    Explanation:

    The required return of a stock consists of two parts which are the dividend yield and the capital gains yield. Therefore, the required return of this stock is:

    R = Dividend yield + Capital gains yield

    R = 0.056 + 0.038

    R = 0.094 or 9.40%
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