The expected rate of return on a share of ordinary shares whose dividends are growing at a constant rate (g)is which of the following?

Question

Quizplus · Accepted Answer

The formula for calculating the expected rate of return on a share of ordinary shares whose dividends are growing at a constant rate (g) is given by the Gordon growth model. This model is expressed as:
Expected rate of return = (Dividend next year / Price of the share) + growth rate of dividends

In other words, the expected rate of return is equal to the dividend yield plus the capital gains yield. Using the symbols from the question, this formula can be written as:
Expected rate of return = D1/Vc + g

Therefore, the correct choice is B.

The Expected Rate of Return on a Share of Ordinary