Weisbro and Sons common stock sells for $51 a share and pays an annual dividend

Question

Weisbro and Sons common stock sells for $51 a share and pays an annual dividend that increases by 4.0 percent annually. The market rate of return on this stock is 9.70 percent. What is the amount of the last dividend paid by Weisbro and Sons? A. $3.03 B. $2.80 C. $4.76 D. $1.96 E. $2.76 Weisbro and Sons common stock sells for $51 a share and pays an annual dividend that increases by 4.0 percent annually. The market rate of return on this stock is 9.70 percent. What is the amount of the last dividend paid by Weisbro and Sons? A. $3.03 B. $2.80 C. $4.76 D. $1.96 E. $2.76 A. $3.03 B. $2.80 C. $4.76 D. $1.96 E. $2.76

Explanation / Answer

Required rate of return=(Dividend for next period/Current price)+Growth rate

0.097=(Dividend for next period/51)+0.04

Hence Dividend for next period=(0.097-0.04)*51

=$2.907

Hence Dividend for next period=Last dividend*(1+Growth rate)

Hence last dividend paid=$2.907/1.04

=$2.80(Approx)(B).

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