ABC Inc. has a dividend yield equal to 5 percent and is expected to grow at a 12 percent rate for the next seven years. What is ABC's required return?
A) 17.0 percent
B) 7.0 percent
C) 6.7 percent
D) 2.4 percent

Question

Quizplus · Accepted Answer

The required return for ABC Inc. can be calculated using the dividend discount model (DDM) formula for stocks that pay dividends and are expected to grow at a constant rate: Required Return = Dividend Yield + Growth Rate. Therefore, ABC's required return = 5% (Dividend Yield) + 12% (Growth Rate) = 17%.

ABC Inc Has a Dividend Yield Equal to 5 Percent and and Is