A dividend is growing 5 percent per year and the upcoming dividend is $5. If s share of stock is selling for $100, what is the investors' required rate of return?

Question

Quizplus · Accepted Answer

The investor's required rate of return can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetually growing dividend), which is given by the formula: Required Rate of Return = (Next Year's Dividend / Current Stock Price) + Growth Rate. Plugging in the given values: Required Rate of Return = ($5 / $100) + 5% = 0.05 + 0.05 = 10%.

A Dividend Is Growing 5 Percent Per Year and the Upcoming