To calculate the required return for Acevedo's stock, we can use the Gordon Growth Model (also known as the Dividend Discount Model for stocks with constant growth). The formula is:

$r = \frac{D_1}{P_0} + g$

Where:

• $r$ is the required return.
• $D_1$ is the expected dividend for the next year.
• $P_0$ is the current price of the stock.
• $g$ is the growth rate of dividends.

Step 1: Identify the given values:

• Current dividend $D_0 = 0.43$ (Acevedo's current dividend).
• Dividend growth rate $g = 4.25\% = 0.0425$.
• Current price $P_0 = 14.60$.

Step 2: Calculate the expected dividend $D_1$:

Since dividends are expected to grow, the expected dividend $D_1$ for next year is: $D_1 = D_0 \times (1 + g)$ $D_1 = 0.43 \times (1 + 0.0425) = 0.43 \times 1.0425 = 0.4483$

Step 3: Apply the formula:

Now we can calculate the required return: $r = \frac{0.4483}{14.60} + 0.0425$ $r = 0.0307 + 0.0425 = 0.0732 \text{ or } 7.32\%$

Conclusion:

The required return for Acevedo's stock is 7.32%.

Would you like more details or explanations on any part of the solution?

Here are 5 related questions you might consider:

1. How does the Gordon Growth Model work for stocks with non-constant growth?
2. What impact does a higher dividend growth rate have on the required return?
3. Can the required return be negative under certain circumstances?
4. What are the limitations of using the Dividend Discount Model for stock valuation?
5. How does the dividend yield factor into stock price predictions?

Tip: Always ensure that the dividend growth rate is sustainable by looking at the company's long-term financial health.