Question

A company declares a cash dividend that is 10% higher than the previous dividend rate. Prior to the announcement, the annual dividend yield was 8% and the stock was trading at $25 per share. What is the new dividend payment amount per share?
A. $.45
B. $.50
C. $.55
D. $.60

Answer 1

Answer:

The answer is C.

Explanation:

Before announcement, the annual dividend yield would be :

0.08 x $25

$2/year.

Now there is a 10% increase( is 10% higher than the previous dividend rate).

So, the new dividend payment amount per share:

1.1 x 2

$2.2/year.

Therefore, quarterly dividend payment amount per share will be $2.2/4

= $0.55 or $.55