Creamy Custard 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 Creamy Custard's stock?

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Quizplus · Accepted Answer

The required rate of return on Creamy Custard's stock is 11.11%. This is calculated using the Gordon Growth Model, which is:Required rate of return = (Dividend / Current stock price) + Growth rateIn this case, the dividend is $4.60, the current stock price is $79.00, and the growth rate is 5%. Plugging these values into the formula, we get:Required rate of return = (4.60 / 79.00) + 0.05 = 11.11%

Creamy Custard Common Stock Is Currently Selling for $79