A stock currently sells for $63 per share, and the required return on the stock is 10%. Assuming a growth rate of 5%, calculate the stock's last dividend paid.
A) $1
B) $3
C) $5
D) $7

Question

Quizplus · Accepted Answer

According to the constant growth model, the formula to calculate the stock's price (P) is:
P = D1 / (r - g)
where D1 is the next year's dividend, r is the required return, and g is the growth rate.

We are given that the stock currently sells for $63 per share, and the required return is 10%. We are also given that the growth rate is 5%. Plugging these values into the formula, we get:
$63 = D1 / (0.10 - 0.05)
$63 = D1 / 0.05
D1 = $3

Therefore, the last dividend paid would also be $3, as the constant growth model assumes a constant growth rate and dividend payout ratio. So, the best choice is B.

A Stock Currently Sells for $63 Per Share, and the Required