Question: Hatstand and Bandstand Inc. stock is selling for $38. The company has been maintaining a constant growth rate of dividends of 5 percent.

Question:

Hatstand and Bandstand Inc. stock is selling for $38. The company has been maintaining a constant growth rate of dividends of 5 percent. If the required rate of return for this company is 14 percent, what was the most recent dividend paid by the company?

5.32

3.06

2.90

3.42

4.11

3.26

I thought the answer was 3.42 because: D= 38 X (.14-.05) =3.42, but I’m told the answer is actually 3.26. Would someone be able to explain to me where I went wrong?

Thanks!

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