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%