Roy\'s Welding Supplies common stock sells for $22 a share and pays an annual di

Question

Roy's Welding Supplies common stock sells for $22 a share and pays an annual dividend that increases by 6 percent annually. The market rate of return on this stock is 9 percent. What is the amount of the last dividend paid? $0.66 $0.84 $0.68 $0.62 $0.61 Winter Time Adventures is going to pay an annual dividend of $3.02 a share on its common stock next week. This year, the company paid a dividend of $2.90 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth 10 years from now if the applicable discount rate is 8.0 percent? $118.70 $112.63 $126.86 $117.29 $108.44

Explanation / Answer

a) g = 6% P0 = $22 k = 9% D1 = P0*(k - g) = $0.66 D0 = $0.66/1.06 = $0.62 b) g = 3.02/2.90 -1 = 4.14% k = 8% P0 =3.02/(8%-4.14%) = 78.24 P10 = 78.24 * 1.0414^10 = $117.29

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