The Fix Anything Store pays a constant dividend.Last year, the dividend yield was 4.5 percent when the stock was selling for $36.25 a share.What must the stock price be today if the market currently requires a 4 percent dividend yield on this stock?

Question

Quizplus · Accepted Answer

The dividend yield is calculated as the annual dividend divided by the stock price. Last year, the dividend yield was 4.5% with a stock price of $36.25, so the dividend was $36.25 * 4.5% = $1.63125. If the market now requires a 4% yield, the stock price should be $1.63125 / 4% = $40.78.

The Fix Anything Store Pays a Constant Dividend