The required rate of return on SAF Corporation's stock is approximately 8.16%.
The required rate of return on SAF Corporation's stock can be calculated using the Gordon Growth Model, also known as the Dividend Discount Model (DDM). The formula is as follows:
P0 = D0 * (1 + g) / (r - g)
Given that P0 = $50.00, D0 = $2.00, and g = 4% or 0.04, we can rearrange the formula to calculate r:
r = (D0 * (1 + g) / P0) + g
Plugging in the values:
r = (2 * (1 + 0.04) / 50) + 0.04
Calculating the expression:
r ≈ 0.0816
Therefore, the required rate of return on SAF Corporation's stock is approximately 8.16%.