1. **State the problem:** We need to find the required return on a stock given the next dividend payment, the dividend growth rate, and the current stock price. 2. **Formula used:** The required return for a stock with dividends growing at a constant rate is given by the Gordon Growth Model (Dividend Discount Model): $$r = \frac{D_1}{P_0} + g$$ where: - $r$ is the required return - $D_1$ is the dividend next year - $P_0$ is the current stock price - $g$ is the growth rate of dividends 3. **Given values:** - $D_1 = 1.89$ - $P_0 = 38$ - $g = 5\% = 0.05$ 4. **Calculate the required return:** $$r = \frac{1.89}{38} + 0.05 = 0.0497 + 0.05 = 0.0997$$ 5. **Convert to percentage:** $$r = 9.97\%$$ **Final answer:** The required return is approximately 9.97%.