Question

1) The common stock of Zeta Group sells for $42 per share, has a rate of return of 12.2 percent, and a dividend growth rate of 1.8 percent annually. What was the amount of the last annual dividend paid

Answer 1

As per Dividend Discount model  
Price of common stock =Last Dividend*(1+growth)/(Rate-growth)
Last Dividend =Price*(Rate-Growth)/(1+growth) =42*(12.2%-1.8%)/(1+1.8%) =4.29

Answer 2

SOLUTION :

Current price, P₀ = 42 ($)

Rate of return, r = 12.2 % = 0.122

Dividend growth rate, g = 1.8% = 0.018

Let $ D₀ be the last annual dividend paid.

Now,

D₀ (1 + g) = (r - g) * P0

=> D₀ * (1 + 0.018) = (0.122 - 0.018) * 42

=> 1.018 D₀ = 4.368

=> D₀ = 4.368/1.018

=> D₀ = 4.29 ($) 

So, amount of the last annual dividend paid = $4.29 (ANSWER).