Suppose you know a company's stock currently sells for $85 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 a capital gains yield and a dividend yield. What is the current dividend if it's the company's policy to always maintain a constant growth rate in its dividends?
Added by Jack J.
Step 1
Since the total return is evenly divided between capital gains yield and dividend yield, we can divide 10 percent by 2 to get 5 percent for each. Show more…
Show all steps
Your feedback will help us improve your experience
Madhur L and 63 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
A stock is priced at $85 per share and pays a quarterly dividend of $2.10 per share. What is the dividend yield per stock share per year?
Sanchit J.
DBP Inc. just paid a dividend of $1.10. The expected growth rate of dividend is 8 percent. The required return for investors in the first three years is 20 percent and 15 percent for the following three years. After those six years, the required return is 10 percent. What is the current share price of the stock?
Narayan H.
A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 2.5%. What is the stock's current price?
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD