Answer:
A. 16.71%
Explanation:
Use dividend discount model (DDM) to solve this question.
Formula for finding the required return of a stock is;
r = [tex]\frac{D1}{P0} +g[/tex]
where P0 = Current price = $17.50
D1 = Next year's dividend = $3.45
r= required return = ?
g= growth rate = -3% or -0.03 as a decimal (negative sign is because dividend is expected to decrease)
r = [tex]\frac{3.45}{17.50} -0.03\\ \\ =0.19714 - 0.03\\ \\ =0.16714[/tex]
As a percentage , it becomes 16.71%
