To calculate the required rate of return for the stock, you can use the Gordon Growth Model (also known as the Dividend Discount Model for a stock with constant growth). The formula is as follows:
\[ P_0 = \frac{D_1}{r - g} \]
Where:
- \( P_0 \) = current stock price ($44.58)
- \( D_1 \) = dividend expected next year ($3.79)
- \( r \) = required rate of return
- \( g \) = growth rate of the dividend (4.76% or 0.0476)
Rearranging the formula to solve for \( r \):
\[ r = \frac{D_1}{P_0} + g \]
Now plug in the values:
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Calculate \( \frac{D_1}{P_0} \): \[ \frac{D_1}{P_0} = \frac{3.79}{44.58} \approx 0.08493 \text{ or } 8.493% \]
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Add the growth rate \( g \): \[ r = 0.08493 + 0.0476 \approx 0.13253 \text{ or } 13.253% \]
Thus, the required rate of return for the stock is approximately 13.25%.