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To calculate the required return on equity (r'e), you can use the Capital Asset Pricing Model (CAPM), which is expressed as r'e = r_f + β(r_m - r_f). Here, r_f represents the risk-free rate, β is the stock's beta (a measure of its volatility relative to the market), and (r_m - r_f) is the market risk premium. Alternatively, r'e can also be calculated using the Gordon Growth Model if dividends are involved, as r'e = (D_1/P_0) + g, where D_1 is the expected annual dividend, P_0 is the current stock price, and g is the growth rate of dividends.

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1mo ago

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