A stock that pays a constant dividend of $2.50 forever currently sells for $21. What is the required rate of return?

Name: A stock that pays a constant dividend of $2.50 forever currently sells for $21. What is the required rate of return?
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Question

Quizplus · Accepted Answer

The required rate of return can be calculated using the formula for a perpetuity: Required Rate of Return = Dividend / Price. Here, it is $2.50 / $21 = 0.1190 or 11.90%, which rounds to 12%.

A Stock That Pays a Constant Dividend of $2