The current yield on Alpha's ordinary equity is 4.8%.The company just paid a €2.10 dividend.The rumor is that the dividend will be €2.205 next year.The dividend growth rate is expected to remain constant at the current.What is the required rate of return on Alpha's equity?

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The required rate of return on Alpha's equity can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity) formula: Required Rate of Return = Dividend per Share / Price per Share + Growth Rate. Given the dividend is expected to grow to €2.205 next year, we use this as D1. The current yield is 4.8%, which is calculated as Dividend per Share / Price per Share. Therefore, Price per Share = €2.10 / 0.048 = €43.75. The growth rate (g) can be calculated as (€2.205 - €2.10) / €2.10 = 0.05 or 5%. Plugging the values into the formula: Required Rate of Return = €2.205 / €43.75 + 0.05 = 0.0504 + 0.05 = 0.1004 or 10.04%.

The Current Yield on Alpha's Ordinary Equity Is 4