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) can be used to find the last dividend paid: P = D0 * (1 + g) / (r - g). Solving for D0: $22 = D0 * (1 + 0.038) / (0.082 - 0.038). D0 = $0.93.

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