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

Ask a new question for Free

By Image

Drop file here or Click Here to upload

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