One can estimate the expected rate of return or the cost of equity capital as
A)Dividend yield - expected rate of growth in dividends.
B)Dividend yield + expected rate of growth in dividends.
C)Dividend yield/expected rate of growth in dividends.
D)(dividend yield) × (expected rate of growth in dividends).

Question

Quizplus · Accepted Answer

The cost of equity capital is the return that investors require to invest in a company's stock. This can be estimated using the dividend discount model, which states that the expected rate of return is equal to the dividend yield plus the expected rate of growth in dividends. This is because investors expect not only to receive dividends but also for those dividends to grow over time, increasing the value of their investment. Thus, the best choice is B, which is dividend yield + expected rate of growth in dividends.

One Can Estimate the Expected Rate of Return or the Cost