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

$ 3.87

Step-by-step 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 =
`$(9)/(2)=4.5$`

We known that

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

`$D_1=0.045 * 90$`

= 4.05

The current dividend is,

`$D_0= (4.05)/(1.045)$`

= $ 3.87