To find the stock's required rate of return, we can use the Gordon Growth Model (Dividend Discount Model), which is given by:

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

where:

• $D_1$ is the expected dividend one year from now,
• $P_0$ is the current stock price,
• $g$ is the growth rate of dividends.

Given values:

• $P_0 = 25.70$
• $D_1 = 3.79$
• $g = 2.2\% = 0.022$

Calculation:

1. Calculate the dividend yield (the ratio of $D_1$ to $P_0$): $\frac{D_1}{P_0} = \frac{3.79}{25.70} = 0.1475$

2. Add the growth rate $g$ to the dividend yield to find $r$: $r = 0.1475 + 0.022 = 0.1695$

Answer:

The stock's required rate of return is 0.1695 (or 16.95%).

Would you like more details, or do you have any questions?

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Here are five additional questions related to this topic:

1. How does the dividend growth rate affect the stock’s required rate of return?
2. What would the required rate of return be if the dividend growth rate was 3% instead of 2.2%?
3. How does a decrease in the current stock price affect the required rate of return?
4. What assumptions does the Gordon Growth Model rely on?
5. How would a change in the next dividend amount impact the required rate of return?

Tip: When using the Gordon Growth Model, ensure that the growth rate is less than the required rate of return; otherwise, the model becomes invalid.