Math Problem Statement
Suppose you know that a company’s stock currently sells for $65.60 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between capital gains yield and 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?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Solution
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Math Problem Analysis
Mathematical Concepts
Finance
Stock Valuation
Dividend Yield
Capital Gains Yield
Formulas
Required return (r) = Dividend yield + Capital gains yield
Stock price (P) = D1 / (r - g)
Capital gains yield = Dividend growth rate (g)
Theorems
Dividend Discount Model (DDM)
Constant Growth Model
Suitable Grade Level
College-level Finance or Economics
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