Suppose you know a company\'s stock currently sells for $100 per share and the r

Question

Suppose you know a company's stock currently sells for $100 per share and the required return on the stock is 13 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.

If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

A.) 5.80

B.) 6.10

C.) 6.56

D.) 12.21

Suppose you know a company's stock currently sells for $100 per share and the required return on the stock is 13 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.

Explanation / Answer

We know P = D1/K-g

100 = D1/0.13-0.065

D1 = 100*0.065 = 6.5

D = 6.5/1.065 = 6.10

Hence Ans is B-6.10

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