Required Rate of Return Calculator

Investment Return Requirement Estimator

Input Fields

Current Annual Dividend (D)

D

$

Enter the current annual dividend paid by the stock

Current Stock Price (P)

P

$

Enter the current price of the stock

Constant Growth Rate (g)

g

%

Enter the expected annual growth rate of the dividend

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Your Results

Required Rate of Return (k)

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Required Rate of Return Formula

$$k = \frac{D}{P} + g$$

Where:

• $$k$$ = Required rate of return
• $$D$$ = Expected dividend
• $$P$$ = Current stock price
• $$g$$ = Dividend growth rate (as decimal)

Required Rate of Return – Calculation Example

Let’s say a stock pays a $2.00 dividend, the current price is $40.00, and the dividend is expected to grow at 5% annually.

Calculation:

1. $$k = \frac{2}{40} + 0.05 = 0.05 + 0.05 = 0.10$$

So, the required rate of return is 10%.

The Required Rate of Return Calculator uses the Gordon Growth Model to estimate the minimum return an investor expects from an equity investment. It’s useful for evaluating stock attractiveness or setting discount rates in valuation. This metric ensures that returns align with risk and growth expectations.