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%

Question

Quizplus · Accepted Answer

The required return can be calculated using the Gordon growth model: 
Required Return = (Dividend/Price) + Growth Rate
= ($2/$25) + 6% = 14%
The P/E ratio is not relevant for calculating the required return using the Gordon growth model. Therefore, option C is the correct answer.

What Is the Required Return for a Stock That Has