In expected rate of return for constant growth, an expected yield on capital must be

The correct answer is: D. equal to expected growth rate

The expected rate of return for constant growth is the sum of the dividend yield and the expected growth rate. The dividend yield is the current dividend divided by the current price of the stock. The expected growth rate is the expected rate of growth of the company’s dividends.

If the expected rate of return is greater than the expected growth rate, then the stock is overvalued. If the expected rate of return is less than the expected growth rate, then the stock is undervalued.

If the expected rate of return is equal to the expected growth rate, then the stock is fairly valued.

Here is a more detailed explanation of each option:

• Option A: equal to zero. This is not possible, because the expected rate of return must be greater than or equal to zero.
• Option B: greater than expected growth rate. This is possible, but it would mean that the stock is overvalued.
• Option C: less than expected growth rate. This is possible, but it would mean that the stock is undervalued.
• Option D: equal to expected growth rate. This is the only option that is both possible and consistent with the definition of the expected rate of return.