Question

Teder Corporation stock currently sells for $45 per share. The market requires a 9 percent return on the firm's stock. Required : If the company maintains a constant 6 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

$1.22

$3.32

$1.35

$6.81

$1.27

Answer 1

Answer: $1.27

Under Constant dividend Growth model,

Po= Do*(1+9) (r-9)

where,

P0 = Current price stock

D0 = most recent dividend

g = constant growth rate

r = required return

We can rewrite equation in following manner:

Do=1 Po * (r-9) (1 +9)

putting the values,

Do = 45 * (0.09 -0.06) (1 + 0.06)

by solving,

Do = $1.27

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.