Thursday, 31 July 2014

Raffalovich, Inc., is expected to maintain a constant 5.4 percent growth rate in its dividends, indefinitely.

Raffalovich, Inc., is expected to maintain a constant 5.4 percent growth rate in its dividends, indefinitely.

Required:
If the company has a dividend yield of 3.9 percent, what is the required return on the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  Required return %  




Explanation:
The required return of a stock is made up of two parts: The dividend yield and the capital gains yield. So, the required return of this stock is:

R = Dividend yield + Capital gains yield
R = .0390 + .0540
R = .0930, or 9.30%