The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant percent per year? a. Dividend yield - Capital gains yield b. Dividend yield + Capital gains yield c. Dividend yield \( \times \) Capital gains yield d. \( \left(D_{1} / P_{0}\right) / g \) e. \( \left(P_{0} / D_{1}\right)-g \)

When the dividend on a stock decreases by a constant percentage each year, you can think of it as a unique scenario where the capital gains yield becomes negative. This means the required return could be viewed as a balancing act between the dividend yield, which could still be positive, and the declining capital gains yield. Essentially, the required return would be equal to the dividend yield minus the magnitude of the declining capital gains yield. In such cases, understanding how dividends are affected by market conditions is crucial. A decrease in dividends may signal underlying issues within a company, potentially leading investors to adjust their expectations for required returns. It's a reminder to keep an eye on dividend trends as they can affect investment strategy and overall stock valuation!