Question

Company Alpha common stock sells for $39.50 a share and pays an annual dividend that increases by 4 percent annually.

The market rate of return on this stock is 8.45 percent. What is the amount of the last dividend paid?

Answer 1

market rate of return=(D1/Current price)+Growth rate

0.0845=(D1/39.50)+0.04

D1=(0.0845-0.04)*39.50

=$1.75775

Hence last dividend paid=D1*Present value of discounting factor(rate%,time period)

=1.75775/1.04

=$1.69(Approx).

Answer 2

ANSWER :

Given :

r = 8.45 % = 0.0845

P₀ = 39.50 ($)

g = 4% = 0.04

Now,

r = D₁ / P ₀ + g

=> 0.0845 = D₁ / 39.50 + 0.04

=> D₁ = (0.0845 - 0.04)*39.50 = 1.76 ($) approx.

=> D₀ = D1/1.04 = 1.69 ($) approx. 

So,

$1.69   is the last dividend paid  (ANSWER)