Question

In computing the cost of common equity, if the dividend (D1) goes downward and market price (P0) goes up, required rate of return (Ke) will:_____.a. go up.
b. go down.
c. stay the same.
d. slowly increase.

Answer 1

Answer:

b. go down.

Explanation:

The Formula for Required rate of return Ke = Dividend (D1) / Price. So, increase in price which is denominator will leads to decrease in the required rate of return. Hence, In computing the cost of common equity, if the dividend (D1) goes downward and market price (P0) goes up, required rate of return (Ke) will Go down