ou’ve collected the following information from your favorite financial website.

52-Week Price	Stock (Dividend)	Dividend Yield %	PE Ratio	Close Price	Net Change
Hi	Lo
78.10	10.50	Acevedo .43	2.9	6	14.60	−.24
55.81	33.42	Georgette, Incorporated 1.54	3.8	10	40.43	−.01
130.93	69.50	YBM 2.00	2.2	10	88.97	3.07
50.24	13.95	Manta Energy .80	5.2	6	15.43	−.26
35.00	20.74	Winter Sports .32	1.5	28	??question mark	.18
According to analysts, the growth rate in dividends for Acevedo for the previous 10 years has been 4.25 percent. If investors feel this growth rate will continue, what is the required return for the company's stock?

Note: Do not ro

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.

You've collected the following information from your favorite financial website. According to analysts, the growth rate in dividends for Acevedo for the previous 10 years has been 4.25 percent. If investors feel this growth rate will continue, what is the required return for the company's stock?

Learn how to calculate the required return for Acevedo's stock using the Gordon Growth Model. This example covers financial math concepts such as dividend growth rates, stock price, and dividend discount models. The current price is $14.60, the dividend is $0.43, and the growth rate is 4.25%. Suitable for finance and economics students.

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