Shares of the Samson Co.offer an expected total return of 12 percent.The dividend is increasing at a constant 3.25 percent per year.What is the value of the next dividend if the stock is selling at $28 a share?
A)$2.50
B)$2.45
C)$2.78
D)$2.34
E)$2.10

Question

Quizplus · Accepted Answer

The expected total return is the sum of the dividend yield and the growth rate. Given the total return is 12% and the growth rate is 3.25%, the dividend yield is 8.75%. The dividend yield is the next dividend divided by the stock price. Therefore, the next dividend is 8.75% of $28, which is $2.45.