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What are the components of the required rate of return on a share of stock? Briefly...

What are the components of the required rate of return on a share of stock? Briefly explain each component.

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Answer #1

The components of the required rate of return on a share of stock are the following-

  1. The Dividend yield- It refers to the amount of dividend expressed in the form of percentage of a current share price. The dividend yield measures the annual percentage of income returns on the stock.
  2. The Capital gains yield- It refers to the percentage appreciation in the price on an investment. It is measured as the increase or appreciation in the price of the investment as divided by its cost of acquisition. This is represented as a percentage of price. A yeild is defined as an appreciation whereas a decrease or loss is definded as a depreciation.
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