If we assume dividends are growing over time, one can earn their required rate of return...
If we assume dividends are growing over time, one can earn their required rate of return on common stock by
A. Selling it for the same price they paid for it.
B. Selling it at a price that has grown along with the dividends.
C. Holding it for about 20 years after which time dividend income alone will get them close to their required rate of return.
Homework Answers
The answer is
b. Selling it at a price that has grown along with the dividends.
Price of a stock is equal to the present value of expected future dividends.
When dividends grow, stock price also increases.
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