F & D Industry's common stock sells for $43.05 a share and pays an annual dividend that increases by 5% annually. The market rate of return on this stock is 10%. What is the amount of the last
Dividend paid by F & D?

Question

Quizplus · Accepted Answer

The dividend discount model (DDM) can be used here: P = D0 * (1 + g) / (r - g). Solving for D0, we get D0 = P * (r - g) / (1 + g). Substituting the given values: D0 = $43.05 * (0.10 - 0.05) / (1 + 0.05) = $2.05.

F & D Industry's Common Stock Sells for $43