Suppose you know a company\'s stock currently sells for $80 per share and the re

Question

Suppose you know a company's stock currently sells for $80 per share and the required return on the stock is 16 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?

$11.85

$6.40

$6.48

$5.63

$5.93

Suppose you know a company's stock currently sells for $80 per share and the required return on the stock is 16 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.

Explanation / Answer

Here in the problem divided and capital gains yield yield is even.

Therefore Given Dividend Yield = 16/2 = 8 %

Current price of te stock = $ 80.00

We know

(Dividend 1)/Current Price= 0.08

D1 = 80.00 * 0.08 = 6.40

Therefore Current Dividend (D0) = 6.40/1.08 = 5.925 say $ 5.93

The current dividend per share = $ 5.93

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