Grateful Eight Co. is expected to maintain a constant 3.7 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

Question

Business

Sanaa Jones

17 April, 16:23

Grateful Eight Co. is expected to maintain a constant 3.7 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Kellen Villa · Answer 1

9.30%

Explanation:

Data provided in the question

Growth rate = 3.7 percent

Dividend yield = 5.6 percent

The computation of the required rate of return on the company stock is shown below:

= Growth rate + dividend yield

= 3.7% + 5.6%

= 9.30%

We simply added the growth rate and the dividend yield so that the required rate of return could come