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3 October, 11:17

Suppose you know that a company's stock currently sells for $74 per share and the required return on the stock is 10.6 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

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  1. 3 October, 14:21
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    Current dividend per share = $3.72 (Approx).

    Explanation:

    Given:

    Current stock price = $74

    Rate of return = 10.6%

    Dividend yield rate = 10.6% / 2 = 5.3% = 0.053

    Computation:

    Dividend = Current stock price x Dividend yield rate

    Dividend = $74 x 0.053

    Dividend = $3.922

    Current dividend per share = Dividend (1 / 1 + yield rate)

    Current dividend per share = $3.922 (1 / 1.053)

    Current dividend per share = $3.922 (0.949667616)

    Current dividend per share = $3.72459639

    Current dividend per share = $3.72 (Approx).
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