Question

A stock is expected to maintain a constant dividend growth rate of 4.3 percent indefinitely. if the stock has a dividend yield of 5.6 percent, what is the required return on the stock?

Answer 1

The required return on the stock is 9.9%.

Stock:

• A stock, also known as equity, is a security that represents the ownership of a fraction of the issuing corporation. Units of stock are called "shares" which entitles the owner to a proportion of the corporation's assets and profits equal to how much stock they own.
• Stocks represent ownership in a publicly traded company. You take a stake in a firm when you purchase its shares. For example, if a company has 100,000 shares, and you buy 1,000 of them, you own 1% of the company.
• Stocks are not actual assets; they are financial assets. Paper assets that are easily convertible to cash are referred to as financial assets. Real assets have inherent worth because they are tangible.
• The required return on the stock=dividend yield + Growth rate
• which is equal to' =(4.3+5.6)
• =9.9%

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