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8 November, 07:15

Suppose you know a company's stock currently sells for $70 per share and the required return on the stock is 13 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. 8 November, 08:52
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    Total return on the stock is evenly divided between a capital gains yield and a dividend yield. So capital gain yield is 6.5% and dividend yield is 6.5%

    Expected return = Dividend yield + Capital gain yield = D0 * (1+g) / P0 + g

    0.13 = D0 (1+0.065) / 70 + 0.065

    D0*0.015 = 0.065

    D0 = $4.33

    So the current dividend per share is $4.33
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