The expected rate of return or the cost of equity capital is estimated as follows:
A) Dividend yield - expected rate of growth in dividends
B) Dividend yield + expected rate of growth in dividends
C) Dividend yield/expected rate of growth in dividends
D) (Dividend yield) * (expected rate of growth in dividends)

Question

Quizplus · Accepted Answer

The cost of equity capital is estimated by considering both the dividend yield and the expected rate of growth in dividends. The formula for estimating the cost of equity capital is given as Dividend yield + expected rate of growth in dividends. Therefore, option B is the correct choice.

The Expected Rate of Return or the Cost of Equity