Question

A stock currently sells for $75 per share, and the required return on the stock is 10%. Assuming a constant growth rate of 3%, calculate the stock’s last dividend paid.

Answer 1

$5.10

Step-by-step explanation:

We can use Gordon growth model to calculate the stock price.

P = Do x (1+g) / r - g

P: stock price (Given: $75)

Do: Last dividend paid (Missing value)

g: Dividend growth rate (3%)

r: required return (10%)

By inputting the number into the above equation, we have the following:

75 = Do x 1.03 / 0.1 - 0.03

--> Do = $5.10