Question

Solution:-

 Dividend per share \$ 3.17 1%

Explanation:-

We know the stock has a required return of 10 percent, and the dividend and capital gains yield are equal, so:

Dividend yield = 1/2(.10)

Dividend yield = .050 = Capital gains yield

Now we know both the dividend yield and capital gains yield. The dividend is simply the stock price times the dividend yield, so:

D1= .050(\$66.40)

D1= \$3.32

This is the dividend next year. The question asks for the dividend this year. Using the relationship between the dividend this year and the dividend next year:

D1= D0(1 + g)

We can solve for the dividend that was just paid:

\$3.32 = D0(1 + .050)

D0= \$3.32 / 1.050

D0= \$3.17

Please Rate or comment if you have any doubt regarding this solution.

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