Most corporations pay quarterly dividends on their common stock rather than annu

Question

Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders.

Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders.

Explanation / Answer

Solution : Dividend paid = 6 growth rate = 3% p.a. Ke = 18% current share price (P-0) P-0 = D-0 *(1+g) / (Ke - g) = 6 * (1.03) / (0.18 - 0.03) = 6.18/ 0.15 = 41.2 So price is $41.2

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