Valuation of Corporate Securities
Rate of Return
Investors' Required Rate of Return on Common Stock
By manipulating the Gordon formula, the investors' required rate of return may be estimated.
|ks =||D1||+ g|
For example, find the investors' required rate of return on a share of common stock selling for $100, current dividends of $3 and a dividend growth rate of 4%.
|ks =||3.12||+ .04||= 7.12%|