A stock is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely. If the stock has a dividend yield of 5.7 percent, what is the required return on the stock?

Multiple Choice

9.4%

8.4%

9.1%

9.6%

10.1%

The required return on a stock with a constant dividend growth rate can be calculated using the Gordon Growth Model (or Dividend Discount Model). The formula for the required return, \( r \), is:

\[
r = \text{Dividend Yield} + \text{Dividend Growth Rate}
\]

Given:
- Dividend yield = 5.7%
- Dividend growth rate = 4.4%

Substitute the values:

\[
r = 5.7\% + 4.4\% = 10.1\%
\]

### Answer:
The required return on the stock is **10.1%**.

Would you like more details, or have any questions about this calculation?

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**Relative Questions:**
1. How does the dividend yield affect the required return on a stock?
2. What is the significance of a constant dividend growth rate for a stock?
3. How would the required return change if the dividend yield were lower?
4. What is the Gordon Growth Model, and when is it most applicable?
5. How is the dividend yield typically calculated?

**Tip:** For stocks with constant dividend growth, the Gordon Growth Model provides a straightforward way to estimate the required return.

A stock is expected to maintain a constant dividend growth rate of 4.4 percent indefinitely. If the stock has a dividend yield of 5.7 percent, what is the required return on the stock? Multiple Choice: 9.4%, 8.4%, 9.1%, 9.6%, 10.1%

Learn how to calculate the required return on a stock with a constant dividend growth rate of 4.4% and a dividend yield of 5.7%. Using the Gordon Growth Model, this problem provides a step-by-step solution, perfect for finance students and investors.

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