**Transcription for Educational Website****Garage, Inc.'s Stock Return Calculation**Garage, Inc. is expected to maintain a constant 6% growth rate in its dividends, indefinitely. If the company has a dividend yield of 5.0%, what is the required return on the company's stock?**Options:**- 11.00%- 11.53%- 11.3%- 11.33%- 11.8%**Explanation of Concepts:**The required return on a company's stock can be calculated using the Gordon Growth Model (Dividend Discount Model), which is expressed as:\[ \text{Required Return} = \text{Dividend Yield} + \text{Growth Rate} \]Given:- Dividend Yield = 5.0%- Growth Rate = 6%\[ \text{Required Return} = 5.0\% + 6\% = 11\% \]Understanding these calculations can help investors make informed decisions about their investments in stocks that pay dividends.

Dividend yield = Dividend payment (expected to be paid next year) / Current stock value = D1 / Po…

Answered: Garage, Inc. is expected to maintain a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

A company is expected to maintain a constant 3 percent growth rate in its dividends indefinitely. If the company’s stock has a dividend yield of 4.85 percent, what is the required return on the stock? (Hint: dividend yield is a 2 stock’s dividend divided by its price.)
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QuickRunners Co. is currently selling for $50.00 per share. The company expects to pay a dividend of $3.50 per share in a year. For the remainder of the company’s life, dividends are expected to grow at a constant rate, and investors are expected to require a 9% return to invest in QuickRunners Co. stock. What is the dividend growth rate using the constant growth model

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