The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? Select one:

a. 12.75 percent

b. 13.39 percent

c. 9.08 percent

d. 15.82 percent

e. 10.86 percent

Question

Fury

Mathematics

27 July, 14:43

The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? Select one:

a. 12.75 percent

b. 13.39 percent

c. 9.08 percent

d. 15.82 percent

e. 10.86 percent

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Answers (1)

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Cornelius · Answer 1

Answer: The correct answer is : e. 10.86 percent

Step-by-step explanation: The current yield is 1.89% = 1.89 / 100 = 0.0189

The rate of return (R) is:

R = 0.0189 + [ (1.70 - 1.56) / 1.56 ]

R = 0.0189 + 0.0897

R = 0.1086

R = 0.1086 x 100

R = 10.86%

The required rate of return is the minimum return that an investor needs to be calm, it is the amount of profit needed to justify continuing a project or an investment.