Answered: As the required rate of return on a…

As the required rate of return on a firm's common stock decreases, all else equal, the price of a firm's common stock will

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 10MC

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Concept explainers

Stock Yields

The stock yield is otherwise known as the dividend yield. The dividend yield is an annual payment of the stock dividends to the holder of a firm’s stock. The dividend yield is a financial ratio to measure the value of dividend payout every year for the relative stock price. The yield of a stock is usually shown in a percentage that discloses the expected future earnings from stock depending on the current stock price in the future. Stock yield will change depending on the market fluctuations and in accordance with the market fluctuations, the dividends will be increased or decreased by the firm.

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As the required rate
of return on a firm's common stock
decreases, all else equal, the price
of a firm's common stock will

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Step 1: How do you compute the price of a stock using the dividend discount model.

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Step 2: Explain change in the stock price when required return on equity decreases, keeping others constant.

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