Use the dividend growth model to determine the required rate of return

Use the dividend growth model to determine the required rate of return for equity.

Your firm recently paid a dividend of $2.25 per share, has a recent price of $40.20 per share, and anticipates a growth rate in dividends of 3.00% per year for the foreseeable future.
A) 8.76%
B) 8.60%
C) 8.44%
D) There is not enough information to answer this question.

ANSWER

Answer: A
Explanation: A) Re = + g = Re = $2.25 ∗ (1.03)/$40.20 + 0.03 = 8.76%.