Valuation of Corporate Securities
Self-Paced Overview
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 |
| P0 |
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% |
| 100 |
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