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The common stock of Duck Diagnostics is selling for $69.23 per share. The company pays a constant annual dividend and has a total return of 9.1 percent. What is the amount of the dividend?a. $4.25 b. $4.27 c. $6.30 d. $6.92 e. $6.03

Respuesta :

Shahzaibfaraz

Answer:

Dividend = $6.29993 rounded off to $6.30

Option c is the correct answer

Explanation:

Using the zero growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = Dividend / r

Where,

  • r is the required rate of return or cost of equity

Plugging in the values for P0 and r in the formula, we can calculate Dividend to be,

69.23 = Dividend / 0.091

69.23 * 0.091 = Dividend

Dividend = $6.29993 rounded off to $6.30

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