Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Concept explainers

Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that…
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is…
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normal…
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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nces Suppose you know that a company's stock currently sells for $50 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Mc Graw Hill C Current dividend per share © N @ W #3 E $ 4 R do LO % 5 < Prev T 6 1 of 8 & Y 7 Next > * 00 U
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Transcribed Image Text:nces Suppose you know that a company's stock currently sells for $50 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Mc Graw Hill C Current dividend per share © N @ W #3 E $ 4 R do LO % 5 < Prev T 6 1 of 8 & Y 7 Next > * 00 U
Expert Solution
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Information;

Stock price (P0) = $50

Required return (r) = 0.10

Dividend yield = 0.05 (i.e. 0.10 / 2)

Capital gain yield = 0.05 (i.e. 0.10 / 2)

Growth rate will be equal to capital gain yield (g) = 0.05

Current dividend (D0) = ?

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