The required return on an equity security is comprised of a:
A) dividend yield and ROE.
B) current yield and a terminal value.
C) sustainable growth rate and a plowback yield.
D) dividend yield and a capital gains yield.

Question

Quizplus · Accepted Answer

The required return on an equity security is composed of the dividend yield (i.e. the expected dividend payments relative to the market value of the stock) and the capital gains yield (i.e. the expected price appreciation of the stock). This means that the return is made up of the income earned from dividend payments and the potential for the stock to increase in value.

The Required Return on an Equity Security Is Comprised of A