Question

Teder Corporation stock currently sells for $110 per share. The market requires a 7 percent return on the firm's stock.

   

Required :

If the company maintains a constant 4 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

$12.14

$5.30

$3.30

$3.17

$3.05

Answer 1

D. $3.17

We are given the stock price, the dividend growth rate, and the required return, and are asked to find the dividend. Using the constant dividend growth model, we get:

P₀ = $110 = D₀(1 + g) / (R - g)

Solving this equation for the dividend gives us:

D₀ = $110(.07 - .04) / (1.04)

D₀ = $3.17