An investor's required rate of return for a common stock can be estimated by summing the stock's dividend yield and annual growth rate,assuming the growth rate is constant over time.

Question

Quizplus · Accepted Answer

The formula for estimating required rate of return for a common stock is:

Required Rate of Return = Dividend Yield + Annual Growth Rate

This formula assumes that the growth rate is constant over time. However, it is important to note that actual growth rates may fluctuate over time, and this formula is just an estimation.

An Investor's Required Rate of Return for a Common Stock