Question

Suppose you know a company's stock currently sells for $90 per share and the required return on the stock is 15 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

Answer 1

Answer:

$ 3.87

Explanation:

It is given that :

Cost of the company's stock per share = $ 90

The required return on the stock is = 15 %

Therefore, the dividend yield = $\frac{9}{2}=4.5$

We known that

$\frac{\text{dividend in one year}}{\text{current price}}=0.045$

$D_1=0.045 \times 90$

     = 4.05

The current dividend is,

$D_0= \frac{4.05}{1.045}$

    = $ 3.87