In the constant growth dividend valuation model, the required rate of return on a common stock can be shown to be equal to the sum of the dividend yield plus ____.
A) yield-to-maturity
B) cost of capital
C) present value yield
D) price appreciation yield

Question

Quizplus · Accepted Answer

In the constant growth dividend valuation model, the required rate of return (R) on a common stock can be shown as:
R = Dividend Yield + Price Appreciation Yield
where Dividend Yield is the annual dividend per share divided by the current market price of the stock, and Price Appreciation Yield is the expected increase in stock price per share. Therefore, the sum of dividend yield and price appreciation yield is the required rate of return, which is the minimum return an investor expects to receive from an investment.

In the Constant Growth Dividend Valuation Model, the Required Rate