Question

if the dividend yield for year one is expected to be 5 percent based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6 percent?

Answer 1

To calculate the year four dividend when dividends grow at a constant 6%, use the formula: Year four dividend = Year one dividend x (1 + growth rate)^number of years. Given a year one dividend yield of 5% based on a current price of $25, the year one dividend is $1.25 approximately. Substituting the values, the year four dividend will be approximately $1.49.

Step-by-step explanation:

To calculate the year four dividend, we can use the formula:

Year four dividend = Year one dividend x (1 + growth rate)number of years

Given that the year one dividend yield is 5% based on a current price of $25, we can calculate the year one dividend:

Year one dividend = $25 x 0.05 = $1.25

Now, we can calculate the year four dividend:

Year four dividend = $1.25 x (1 + 0.06)3 = $1.25 x 1.191016 = $1.49 (approx)