RTF, Inc. common stock sells for $22 a share and pays an annual dividend that increases by 3.8% annually. The market rate of return on this stock is 8.2%. What is the amount of the last dividend paid?
A) $0.88
B) $0.90
C) $0.93
D) $0.97
E) $1.00

Question

Quizplus · Accepted Answer

The dividend discount model (DDM) formula is used: Price = Dividend / (Rate of return - Growth rate). Plugging in the values: $22 = Dividend / (0.082 - 0.038). Solving for the Dividend gives approximately $0.93.

RTF, Inc Common Stock Sells for $22 a Share and Pays