Question

A stock’s required return is equal to the dividend growth rate plus the capital gains yield. True or false

Answer 1

TRUE

REASON :

The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

The required rate of return is the minimum return an investor will accept for owning a company's stock, as compensation for a given level of risk associated with holding the stock. The RRR is also used in corporate finance to analyze the profitability of potential investment projects.

The required rate of return is also known as the hurdle rate, which like RRR, denotes the appropriate compensation needed for the level of risk present. Riskier projects usually have higher hurdle rates or RRRs than those that are less risky.