Shares are currently sells for $63 per share, and the required return on the shares is 10%.Assuming a growth rate of 5%, calculate the share's last dividend paid.

Question

Quizplus · Accepted Answer

The dividend discount model (DDM) formula for a stock with constant growth is P = D0(1+g)/(r-g), where P is the price of the stock, D0 is the last dividend paid, g is the growth rate, and r is the required return. Rearranging the formula to solve for D0 gives D0 = P(r-g)/(1+g). Substituting the given values (P = $63, r = 10% or 0.10, g = 5% or 0.05) gives D0 = $63(0.10-0.05)/(1+0.05) = $3.

Shares Are Currently Sells for $63 Per Share, and the Required