ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?

A. 10 percent

B. 11 percent

C. 4 percent

D. 5 percent

option (A) 10 percent

Explanation:

Data provided in the question:

Dividend yield = 3 percent

Expected growth rate = 7 percent

Therefore,

The ABC's required return will be

= Dividend yield + Expected growth rate

or

The ABC's required return = 3% + 7%

or

The ABC's required return = 10%

Hence,

The ABC's required return is option (A) 10 percent