EYE, Inc. common stock sells for $30 a share and pays an annual dividend that increases by 3.3%...

Question:

EYE, Inc. common stock sells for $30 a share and pays an annual dividend that increases by 3.3% annually. The market rate of return on this stock is 7.8%.

What is the amount of the last dividend paid?

Market Rate of Return:

Market rate of return of the stock also refers to the expected rate of return which can be calculated using capital asset pricing model. The capital asset pricing model calculates the required return of the stock based on its systematic risk as represented by beta.

Answer and Explanation:

The amount of the latest issued dividend can be calculated with the following formula:

{eq}\begin{align*} Dividend~paid&=Stock~price*(Required~return-Growth~rate)\\ &=30*(.078-.033)\\ &=30*.045\\ &=1.35 \end{align*} {/eq}

The amount of the last dividend paid is $1.35


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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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