Crandle's common stock is currently selling for $79.00.It just paid a dividend of $4.60 and dividends are expected to grow at a rate of 5% indefinitely.What is the required rate of return on Crandle's stock?

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Quizplus · Accepted Answer

The required rate of return on Crandle's stock is 11.11%. This is calculated using the Gordon Growth Model, which is:Required rate of return = Dividend yield + Growth rateDividend yield = Dividend / PriceDividend yield = $4.60 / $79.00Dividend yield = 5.82%Growth rate = 5%Required rate of return = 5.82% + 5%Required rate of return = 11.11%

Crandle's Common Stock Is Currently Selling for $79