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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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