You need to know two formulas to solve this problem. In [ ] after the formula is the information provided in the problem:
(1) Dividend Yield = Dividend / Stock Price: [3% = Dividend / Stock Price]
(2) P/E Ratio = Stock Price / Earnings per Share: [20 = Stock Price / $.72]
There's enough information to solve for the stock price using the P/E Ratio, which is 20 * $.72 = $14.4. Now that you know the stock price, you can insert that into the Dividend Yield formula and solve for the dividend, which is 3% * $14.4 = $.43. So, the correct answer is B.
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Michael Ramsey
Director/Manager
Omaha NE
United States
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Original Message:
Sent: 11-30-2020 06:25 AM
From: Syed Yousuf Jamal
Subject: Ratios-pls explain
At the end of the current year, a firm had a dividend yield of 3% and a price-to-earnings ratio of 20X. If fully diluted earnings per share is $.72, what is the dividend paid on each share of common stock?
A. $.02
B. $.43
C. $.04
D. $.60<gdiv></gdiv>
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Syed Yousuf Jamal
None
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