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The dividend yield on Alpha’s stock is 4.8%. The company just paid a $2.10 dividend, and...

The dividend yield on Alpha’s stock is 4.8%. The company just paid a $2.10 dividend, and investors believe that the dividend next year will be $2.205. This dividend growth rate is expected to remain unchanged into perpetuity. What is the implied required return on Alpha’s stock? Enter your answer in decimal form out to four decimals. For example, you would enter r=10.15% as 0.1015.

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Answer #1

Growth rate=(Dividend for next period-Dividend for current year)/Dividend for current year

=(2.205-2.1)/2.1

=0.05

Hence required rate=Growth rate+Dividend yield

=0.05+0.048

=0.098

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