What is the required return for a stock that has a 6% constant growth rate, a price of $25, an expected dividend of $2, and a P/E ratio of 10?
A)5%
B)10%
C)14%
D)22% $25 = 2/(r - .06)

Question

Quizplus · Accepted Answer

We can use the dividend discount model (DDM) to solve for the required return (r) of the stock:

$25 = $2 / (r - 0.06)

Solving for r, we get:

r = ($2 / $25) + 0.06 = 0.14 or 14%

Therefore, the required return for the stock is 14%, which corresponds to choice C.

What Is the Required Return for a Stock That Has