Calculating Stock Prices and Dividend Amounts with Examples

Example 1: Tyler Industries Stock Price Calculation

Tyler Industries stock traditionally provides a rate of return of 14.2 percent. The company just paid an annual dividend of $1.65 a share and recently announced it will commence increasing its dividends by 3.5 percent each year. For this stock to return its traditional rate, what should the market price of this stock be?  

a. $12.03

b. $11.62

c. $15.96

d. $13.98

2. Winslow Brothers common stock sells for $28.20 a share and pays an annual dividend that increases by 1.5 percent annually. The market rate of return on this stock is 11.3 percent. What is the amount of the last dividend paid?  

a. $2.68

b. $2.72

c. $2.84

d. $2.78

3. A Treasury bond matures in 17 years, pays interest semiannually, and carries an annual coupon rate of 3.5 percent. How much are you willing to pay for a $1,000 face value bond if you desire a annual rate of return of 4.25 percent?  

a. $701.67

b. $909.86

c. $554.64

d. $946.96