Favored stock will pay a dividend this year of $3.12 per share. Its dividend yield is 8%. At what...

Question:

Favored stock will pay a dividend this year of $3.12 per share. Its dividend yield is 8%. At what price is the stock selling? (Do not round intermediate calculations.)

Dividend Yield

The value of stock consists of dividend yield and capital gains. The dividend yield and capital gains make up the total rate of return for holding a stock which pays periodic cash dividends.

Answer and Explanation:

Given the following information about Favored Stock,

{eq}D_1 = $3.12 {/eq}

{eq}Dividend \ Yield = 0.08 {/eq}

The price of the stock can be found using the following equation:

{eq}Dividend \ Yield = D_1/P_0 {/eq}

{eq}0.08 = $3.12/P_0 {/eq}

{eq}P_0 = $39 {/eq}

Therefore, the price of the stock is $39.


Learn more about this topic:

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What Is Dividend Yield? - Definition & Calculation

from Corporate Finance: Help & Review

Chapter 2 / Lesson 10
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