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Investors' Required Rate of Return on Common Stock
By manipulating the Gordon formula, the investors' required rate of return may be estimated.
| Ks = |
D1
P0 |
+ g |
|
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
100 |
+ .04 |
= 7.12% |
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