Question

A stock currently sells for $50. The dividend yield is 3.9 percent and the dividend growth rate is 5.2 percent. What is t just paid? itiple Choice $176 $1.62 $176 $1.85 $1.95

Answer 1

Answer:Correct answer is $1.85
The formula for dividend yield=Next dividend/Current share price
Suppose the dividend that was just paid=$x
Growth rate=5.2%
Next year dividend=Dividend just paid*(1+Growth rate)=x*(1+5.2%)
Current share price=$50
Dividend yield=3.9%
Now, dividend yield=x*(1+5.2%)/50
=>3.9%=x*(1+5.2%)/50
=>50*3.9%=x*(1+5.2%)
=>1.95=1.052x
=>x=1.95/1.052=1.8536
So, dividend just paid=$1.85 (Rounded up to 2 decimal places)