Suppose you know a company's stock currently sells for $70 per share and the required return on the stock is 6 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. What is the current dividend if it's the company's policy to always maintain a constant growth rate in its dividends?

$2.04

Explanation:

current stock price $70

required rate of return 6%

expected return = dividend yield + capital gains yield

6% = 3% + 3%

expected return = {[dividend x (1 + growth rate)] / price} + growth rate

6% = {[dividend x (1 + 3%)] / $70} + 3%

6% - 3% = [dividend x (1 + 3%)] / $70

3% x $70 = dividend x (1 + 3%)

$2.10 = dividend x 1.03

dividend = $2.10 / 1.03 = $2.04

Future dividend= $2.0388~ $2.04

Explanation:

The return on the shares is given as 0.06 of $70. And the returns are equally shared between capital gains and dividend.

Dividend= 0.06 ÷ 2= 0.03

Dividend= 0.03 * 70= $2.10

Using the formula that related the present year dividend with next year dividend

Present dividend= Future dividend (1+ rate)

2.1 = Future dividend (1+0.03)

Future dividend= 2.1 ÷ 1.03

Future dividend= $2.0388

Putable Bond

Explanation:

This is an embedded put option that enables the bondholder to demand for the payment of the principal sum from the issuer. It is effectively an option given to bond holders to put the bond back to the issuer once during the lifetime of the bond or on multiple dates.