# a. A stock pays a constant annual dividend and sells for $28.80 a share. If the market rate of... ## Question: a. A stock pays a constant annual dividend and sells for$28.80 a share.

If the market rate of return on this stock is 7.2%, what is the dividend amount?

b. A stock pays a constant annual dividend and sells for $14.80 a share. If the market rate of return on this stock is 5.2%, what is the dividend amount? ## Dividend Yield: The dividend yield is computed by dividing the annual dividend with the current stock price and is expressed as a percentage. It can be simply regarded as the return earned on a stock investment. A company with high dividend yields have a low stock price while a company with low dividend yields have a high stock price. ## Answer and Explanation: Answer: a) The dividend amount is$2.07.

Explanation:

As per the information:

• Current stock price, P0 = $28.80 • Required return on the stock, Ke = 7.20% Computation: • Required return on the stock = Constant annual dividend per share / Current share price • Constant annual dividend per share =$28.80 * 7.20%
• Constant annual dividend per share = $2.07 b) The dividend amount is$0.77.

Explanation:

As per the information:

• Current stock price, P0 = $14.80 • Required return on the stock, Ke = 5.2% Computation: • Required return on the stock = Constant annual dividend per share / Current share price • Constant annual dividend per share =$14.80 * 5.20%
• Constant annual dividend per share = \$0.77 